As harvest runs full speed at the McCauley farm in White Cloud, Kan., Ken McCauley and his son, Brad, are at an exciting crossroads. The two are increasingly working independently and even starting to focus on their own land outside of the joint operation.
“Brad is 40 years old, and I was 42 when I split off on my own,” Ken says. “I think our estate plan is giving Brad a lot of confidence that he can move forward knowing things are going to happen the right way. I have always wanted to help create opportunities like I had for any young farmer, and I’ve been able to do it for our son.”
The Long Legacy Road
Ken and his wife, Mary, invested money and countless hours in finalizing their estate and succession plans.
“When I was president of the National Corn Growers Association, I decided I needed to have something in place if I didn't come home someday,” Ken says.
About 15 years ago, the McCauleys went to their first succession adviser, armed with determination but not a lot of knowledge. That lack of understanding, Ken says, ended up making their plan cost twice as much as it should have. After a few false starts and wrong turns, Ken hired a new adviser, Paul Neiffer, a CPA and principal with CLA.
“They’d actually done some good planning,” Paul recalls. “But any estate plan is not static, and it’s always an ongoing process.”
The farm moved from a limited partnership to an limited liability company (LLC). Within that structure are corporations that include the farm business and some land, which Mary inherited from her family.
Review and Rework
“Our goal is to keep the farm intact and keep our two kids on the same path,” Ken explains. To help with that, the plan includes a buy-sell agreement for Brad and their daughter, Traci Biesemeyer.
On a regular schedule, the McCauleys review and rework their plan.
“Too many farm couples have documents drawn up and then sort of throw them in the drawer,” Neiffer says. “The reality is any estate plan, even if it’s an unwritten estate plan, should be reviewed every couple of years or when there are major tax changes.”
Succession Plan Formalizes Farm
Justin and David Salyer have a clear focus on the next three years. In 2022, David, Justin’s father, turns 70. By that age, David plans to retire from the farm, letting Justin fully take the reins.
This plan seems simple now; but, it’s the result of more than seven years of financial and legal legwork.
In 2002, Justin became the fourth generation to farm in Higginsville, Mo. He and David were farming separately but shared labor and machinery. After several years, they heard a succession planning expert speak, who inspired them to formalize a plan.
In the first year, they met half a dozen times with Dennis Henks, an estate and succession planning specialist with Lincoln Financial Advisors Agribusiness Services, to document everything from family dynamics to financials. After that initial year, they have continued to regularly meet with Henks.
The Salyers farm 1,350 acres of row crops. They also have a cow-calf operation and run a beef finishing feedlot. Originally, David and Justin were sole proprietors.
“We looked at their operations and decided to form a master limited liability company [LLC] that owns the other LLCs underneath it for each of the entities,” Henks says.
This structure segments the business enterprises. In addition, Henks says, it allows for other family members interested in one area of the business to buy into just it, which might be helpful as Justin has two off-farm siblings and two young sons.
Farm Versus Family
To plan for both the long-term and any short-term roadblocks, the Salyers have a buy-sell agreement in place funded with life insurance policies.
Justin says the process helped them fine-tune their finances and focus on each element of the farm.
“Plus, it lets us look at the farm as a business and separates it from the family,” he says. “We now treat the farm totally as a business.”
Crucial Conversations Before Commitment
Ten years ago, Zach and Cole Bailey had no plans to join their family operation. In the early ’80s, their father, Darren, farmed with his father and brother-in-law. The three were focused on expansion.
“We grew the farm to about 30,000 acres in the mid-’90s,” Darren says. “By 2006, things were very hectic, and we were having trouble getting along. So, I ultimately stepped out and spent six years as an independent business.”
Zach and Cole had a front-row seat to the stress of running a large operation with family members.
“We knew what dad went through,” Cole says. “Dad asked us if we’d come back to the farm. The answer was always: Nope.”
The boys, who are the oldest of Darren’s four children, moved away for college. They each married and before long, babies were on the way. As such, they wanted to move back to their small farming community in Louisville, Ill.
Focus on Family
But before the boys would put down roots, crucial conversations had to happen. The Baileys, and their wives, discussed everything from farm responsibilities to personal and farm goals. No one wanted the farm to bruise family relationships. They set up regular farm and family meetings to keep these issues front and center.
On a monthly basis, the Bailey men and their wives meet. “It’s all about communication and being transparent with each other,” Zach says. “We go home and share our frustrations with our wives. At the family meeting, we bring that stuff up. We ask our wives, what have the guys complained about?”
Their primary goal: do not let frustrations fester.
As the family patriarch, Darren says these meetings can be uncomfortable, but they are vital. “I’ve learned to be humble, patient and listen with an open mind to resolve the situation and not take it personally,” he says.
How to Navigate Generational Transitions
Communication is key to establishing a transition plan everyone agrees on, says Rena Striegel, president of Transition Point Business Advisors. “Family businesses that foster a culture of trust, respect and communication find it easier to transfer knowledge and withstand challenges,” she says. Take these steps:
- Start communicating about succession and expectations well in advance of a transition. This includes creating a transition timeline.
- Use a board or governance structure to help monitor the management transition process. This is particularly helpful if you’re in a position where advanced planning is not possible.
- Develop a shared vision that provides stability and family unity as the leadership transitions. This often provides the framework for establishing clear roles, responsibilities and accountability as the new leader(s) emerge. If a leader is going to retain a presence in the operation, clarify define the new role.
- Spend time working on relationships within the family. This can reduce stress, foster trust, encourage open communication and ensure mutual understanding.
3 Succession Strategies
Evaluate Entities. Different farm assets are best suited for certain types of entities, says Paul Neiffer, a CPA and principal with CLA. For those starting from scratch, he prefers to keep land and machinery in a partnership or LLC. “The parent can just simply sell the units, gift the units or transfer the units,” he says.
Pay Taxes. The No. 1 lesson Neiffer has learned is farmers should never not pay taxes. When they have to liquidate inventory they’ve never paid tax on, Neiffer says, they face higher tax bills and debt.
Gift Assets Now. With the rewrite of tax laws, now is a good time to consider making major contributions, especially land, Neiffer says.
An economic farm unit shows how many families a farm can support. Learn how to do the calculation at AgWeb.com/EFU
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