Lori Esther shakes her head in disbelief at the thought of her sons farming together.
"Growing up, I didn’t think they would 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 to take over the family farm operation near Beardstown, Ill. The family just completed the second stage of succession planning by bringing youngest son Chad into the established operation. Chad returned home in 2008 after working as a forester. 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.
"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.
Due to income tax and estate tax ramifications down the road, the Legacy Project team determined that none of the options fit the Esthers’ objectives. Instead, they recommended creating a 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.
"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 a member of the Legacy Project team.
- Legacy Project 2010 Report