The succession planning process inevitably involves lots of questions. As a result, the Farm Journal Legacy Project team receives a consistent stream of e-mails via the "Ask Kevin" page at www.farmjournallegacyproject.com. Below is a sampling of recent questions from readers. I hope the answers will help you overcome any "hiccups" in your succession planning efforts.
My dad’s the boss. He wants to be, and I get that. We do what he wants to do when he wants to do it. I get that too. But when it doesn’t work out, it’s my fault, and I’m supposed to fix it. How can I make things better?
One of the biggest challenges is growing the parent/child relationship into a partnership. You and your dad have spent a lifetime as father and son. The transition to a partner relationship can be awkward and intimidating. A capable young person should be perceived as an asset to the operation, yet he or she is sometimes treated like a threat to the "traditional" way of doing things. It’s important for that young person to respect what the operation is and how it was built. I suggest you:
- Empower yourself to act as a farm partner.
- Allow your dad to adapt to his role as partner (which it sounds like you’re doing).
- Look for gradual improvements as your relationship grows.
My parents signed their farm over to all of their children. My father has since passed away. My mother lives on the farm and is entitled to all of the income and rent. My question is, how do we design a workable agreement among all of us kids, keeping in mind that some might want to sell out?
The best time to negotiate the operating and buy-sell agreements necessary to effectively manage your business relationships is now, while everyone is happy and willing to work together. An operating agreement will help everyone to agree on decision-making authority, management systems, financial distributions and other obligations and conditions.
Including buy-sell provisions in the operating agreement, or writing a separate buy-sell agreement, allows owners to define triggering events and the terms and conditions of a buy or sell transaction. In the right environment, most owners agree to buy-outs over a period of time and under conditions that will not undermine the financial integrity of the farm.
Our son intends to own our farm. Would it be advantageous for him to buy a life policy and pay the premiums on his 69-year-old father as a means to provide an offsetting inheritance for his siblings?
Using life insurance, a farm family can provide inactive (off-farm) heirs with an equitable cash equivalent of the value left to the active (on-farm) heirs. Life insurance allows for a cash distribution to inactive family members and ensures that active heirs are not inhibited by the needs and wants of off-farm owners.
When using life insurance, all parties must consider that the farm might have other debts and obligations—and an operation is always subject to numerous risks. Cash, on the other hand, is relatively simple to manage and, depending on the expected return, one can minimize the investment risks. So, it might not be appropriate for a farmer to match distributions dollar-for-dollar among active and inactive heirs. That’s why we say the emphasis is on equitable cash distribution.