When Brad Starr graduated from Purdue in 1976, he decided if he was successful in building a viable business, he wanted it to grow into the future. He did not want the farm to end with an auction like many other operations. So he’s spent the past several years searching for a viable successor for his corn and soybean farm in Connersville, Ind.
Like many farmers, Starr was faced with an on-farm child and an off-farm child. His daughter became a pediatrician and his son, Daryl, decided to join the family farm. Unlike many families, the Starrs realized after much trial and tribulation it would be best for the farm and the family if father and son were not in business together.
Coming to that conclusion wasn’t easy, for anybody involved.
“Due to personality conflicts, we decided it was better to go our own ways in business,” Starr says. “It was a very tough decision, as there were lots of emotions. We finally got to a crossroads where we knew we needed some outside help.”
Starr and his son worked for a long time to resolve the issue between them. Then they decided it was best to work with a mediator. That mediator is who helped them realize being in business together might not ever work for them.
Daryl has since gone on and created several successful businesses.
Successor Solution. Aside from the difficult conflict management that had to happen as a result of that decision, Starr was faced with another major hurdle: he no longer had a successor to take over his thriving farm business.
So he looked for a solution. Starr attended seminars and did a lot of research on estate planning. He decided to split his farm business into pieces and find a non-relative heir to take over the business when he and his wife, Patti, pass away.
“What we felt like we had to offer was an opportunity for a young person to not have to re-create the wheel to get into the business of farming,” he says.
A plan was formed. Starr wanted the land he and his wife owned to be passed to their children. Then the farm business could be transferred to a non-relative. To achieve this goal, the Starrs created a limited liability corporation to house the land. Another corporation would own the operations side, which includes rolling stock, inventories and the fixed assets pertinent to producing corn and soybeans.
Meandering Path. Once those pieces were in place, Starr set out to find his business’s heir.
“We spent seven years trying to find a partner,” he says. Through university programs and other networking opportunities, Starr found a young person to partner with him. Except that partnership wasn’t a fit, so they split ways.
“As we were about to abandon this idea and start our secondary plan of winding down and eventually having an auction, we finally found our partner,” Starr recalls.
The answer came through working with Lori Culler and her firm Ag Hires, a matchmaking service for agribusinesses and those looking for jobs in agriculture.
“We spent about three hours explaining what we were looking for to Lori and she was to find the individual and do all the pre-screening,” Starr says. “She called me one day and said ‘Brad, I found somebody that you need to meet.’”
That candidate was Doug Biehl, a young man who did not grow up on a farm but fell in love with the profession through volunteering on farms and working in the industry. Biehl and Starr have been business partners for almost five years. The two are excited about the future. In fact, Starr recently started his glide path to retirement, moving from CEO of the company to CFO. This move allows Biehl to take the helm.
Transition Plans. When Starr and his wife pass away, the LLCs holding their farmland will be owned by their children. Biehl will own the operations side of the business and rent the land from Starr’s children. Biehl is purchasing the farming operation as an ongoing business. The farm is set up as a
sub-chapter S corporation, meaning it has its own set of books. Ensuring the finances are done correctly is one of Starr’s main functions in his new role.
“We are working to ensure the connections and communications are there with all our landlords, so that our partner can continue to lease the ground we currently operate in the future,” Starr says.
That type of communication is key in making these arrangements work, says Polly Dobbs, an Indiana attorney and an adviser with the Farm Journal Legacy Project.
“Farmers can create succession plans that allow a non-relative to buy interests in the operation during retirement and upon death,” she says. “If non-farming heirs are going to be absentee landlords, special attention to details is crucial to allow the non-related operation’s successor continued access to farm your family’s land, while your children earn fair value rent on the land, based on the formula you define.”
This process will also ensure the land isn’t sold out from underneath the operator. “You need to draw the road map,” Dobbs says. “Don’t make them figure it out on their own.”
To that end, Starr is visiting with his landlords to ensure Biehl can continue renting that land.
“A major part of my role is to make sure our other landlords are on board,” Starr says.
Planning Tip: Be Specific
Estate planning is important for all families and business owners, but it is crucial for farm families, says Polly Dobbs, Indiana attorney and an adviser with the Farm Journal Legacy Project. If your business will have your children and non-relative heirs working together in the future, you have to lay out specific plans.
“If it’s your intent for one of your heirs or another non-relative successor to use the barn, pastures and shop, for little to no rent, that’s fine, just say so,” she says. “Often the bins, shop, etc., have been built on land that’s going to end up co-owned by multiple children.”
What about your house? Does one of your children or the non-family heir get to live in the home? Do they have to pay rent, or is it part of their compensation for running the operations?
“Be specific,” she says. “If some of your children will be landlords and another (or non-related successor) will be a tenant, be specific about who sets cash rent rates and what to do if (or when) they cannot agree.”
7 Steps to Resolve a Business Conflict
Indiana farmer Brad Starr and his son ultimately decided it was in their relationship’s best interest to not be in business together. But that might not be the case for your operation. If members of your farm team are in conflict, gather everyone involved in the dispute in the same room, says Carolyn Rodenberg, founder of the consulting firm Alternatives to Conflict and an adviser with the Farm Journal Legacy Project. “It is often a good idea to have a third party facilitate the discussion so all family members can be participants,” she says. Follow these steps:
1. Name the problem together. Start by asking, “Why aren’t we communicating better?”
2. Discover the underlying cause of the conflict. What does each person need and why?
3. Brainstorm possible solutions to the conflict issues.
4. Analyze the options and select the best solution.
6. Implement the solution.
7. Evaluate the solution’s effectiveness in one month.