Lori Esther shakes her head in disbelief sometimes at the thought of her sons farming together.
"Growing up, I didn't think they would ever stop fighting,” says Lori, with a mother's knowing grin. "Now they are best friends and business partners.”
Friends and partners today, brothers forever. That's the way Ryan and Chad Esther see themselves moving forward in their journey toward taking over the family farm operation near Beardstown, Ill. The Esther family was chosen to participate in the Farm Journal Legacy Project, an effort to chronicle the planning and implementation of a farm transition plan.
The family is entering into the second stage of succession planning: bringing youngest son Chad into the established operation. Chad recently returned home after working as a forester in Missouri. During the eight years that older brother Ryan has been home, he and their father, Chet, started EFFCO, now a 4,700-acre grain operation, with each owning 50%. The issue long at hand is how they would bring Chad into the operation.
"In everything we do with succession planning, the goal is to ensure financial security and keep the operating entity within active family members,” says Kevin Spafford, Farm Journal succession planning expert and founder of Legacy by Design, a succession planning firm that is guiding the Esthers through transition. "Getting Chad involved, whether with EFFCO or another entity, is integral to that goal.”
The Grand Plan. Typically, there are three ways to bring the next generation into a family farm business:
1. Gifts of stock. You may use your annual gift exclusion to transfer business interests. In this situation, a married business owner can transfer $26,000 worth of stock per year (based on 2010 allowable gifts).
2. Sale of stock. The senior generation sells ownership interest to the next generation.
3. Stock bonus. The senior generation may transfer ownership by paying a bonus in the form of stock instead of cash.
Legacy by Design explored each of the three options as a way to bring Chad into the family business, but, due to income tax and estate tax ramifications down the road, determined none of the options fit the Esthers' objectives.
Instead, it recommended creating a brand new partnership, called Esther Farms, with Chad and Ryan starting as equal partners and owners. Under this planning technique, the existing business (EFFCO) stays under Ryan and Chet's ownership, but any growth going forward will be done through Esther Farms, allowing Chad and Ryan to develop the business on an equal footing.
"It's really important for Chad and Ryan to start out as equals and grow the business together so that Chad feels he is earning his way just as Ryan has with his interest in EFFCO,” says Josh Sylvester, a Certified Financial Planner and principal of Legacy by Design.
- MARCH 2010