When preparing the farm for the next generation, it’s easy to get wrapped up in the legal pieces and forget the most important one – succession planning. It’s the piece that, without time and effort, will throw everything off track for generations to come. Poor succession planning is the greatest estate tax of all!
While estate planning is the process of making sure you have the legal details covered to minimize tax consequences and transfer assets, succession planning focuses on preparing the next leader(s) to lead. No matter how good you are at tax planning – if your heir has never worked with the farm’s finances or worked with your supplier on seed selection – it’s a problem. Handoffs happen over time, grooming leadership and demonstrating abilities.
You may have seen or experienced these three different kinds of farm handoffs:
- The next generation leaves the home farm to start a separate farm.
- The next generation is a part of the farm, but they accumulate land of their own and make all the decisions tied to that land.
- The next generation is fully integrated into the farm with increasing levels of responsibility.
One of our clients is pursuing the third way. The cousins who farm together recently completed the transitions from their fathers not long ago and are now starting the next transition. While there are three in the operation from the next generation – one, who’s not quite 30, is identified as the next formal leader. They are being very intentional about ensuring that what has been learned over the past generations makes the leap to the next generation. They want the confidence that what they’ve learned from their hard work on the farm doesn’t die with them. So what do they do?
Meetings with the seed supplier, banker and machinery dealer all have a lot of people involved. They call it intentional redundancy. The current decision-makers and the next generation are all at the table, one doing business, the other learning. This is how the current generation learned its skills, and it provided them with a great format to transfer knowledge.
Today, the consequences of our decisions (both good and bad) are bigger than they were a generation ago – so the experience of being “at the table,” connected to a new business perspective can be a great advantage to the future of your farm.
- Assess your attitude about developing the next generation. It’s hard to do anything well if it isn’t a priority.
- Discuss which path is best for your farm – a separate “field” approach or an integrated farm approach.
- List the top five competencies that the current generation has or would like to have. Maybe there are things you admire in other successful farms.
- Attach two activities to each competency that would build exposure and understanding.
- Review how you are doing every quarter.