It’s no secret. Succession planning involves bringing in the experts. But that’s nothing new. Farm families have been calling in lawyers, accountants and business advisors to help with their transition planning for decades.
But don’t try saying there’s nothing new about those advisors today. Or about what they’re bringing to more and more farms.
It isn’t 2020 anymore.
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What exactly does this mean around the kitchen table? To find out, and for pointers on how to take full advantage of the changes, Country Guide had our own sort of succession discussion with Annessa Good-Hassard, transition advisor at Peak Heritage Consulting in Cremona, Alta.
From the start
“We used to say, farmers need to talk more and communicate better,” Good-Hassard says. But that was then. It may not always be perfect, but today’s farm families have made huge progress at communicating.
Except, says Good-Hassard, “we’ve got to take it one step further. As an industry, advisors have been encouraging families to talk more and to ask for everybody’s opinion. But talk about what? Are we going to just keep repeating the same conversations?”
For others to talk is no longer enough. Instead, the focus is increasingly on helping all the participants to up their game, so they bring more to the table. Plus, they have to be adept at the process, “We need to get more comfortable with scenario planning,” agrees Good-Hassard,
Today’s farms are complicated and sophisticated like never before, and participants need to be comfortable with the vocabulary not only of high-tech farming but of business too.
It is still daunting for families, she says. However, her job is to make sure they’ll see it as a gain for them individually, for them as a family, and for the farm overall. Which, she understands, might seem a big ask at first.
Plus, advisors like Good-Hassard are also changing their approach. She brainstorms options with the family. “I encourage families that their ‘plan’ comes from a multi-disciplinary approach. Each option needs to be looked at for how does it advance our family’s values and goals as well for financial viability and its tax/legal implications. And then you choose the option best for you.
“We really have evolved,” she says. “The options are no longer solely focused on taxation.”
Who gets the land?
That is the elephant in the room discussion, says Good-Hassard.
It’s also good to know that if the process is working as it should, there’s a good chance you’re going to hear family members say things that are different — sometimes dramatically different — than they would have said even a few years ago.
It isn’t only farmland prices that have changed. So has the magnitude and the expectation of fairness and opportunities, beyond siblings, to include the next generations (born, or to be born) due to the exploding generational wealth of farmland. Good-Hassard asks the parents “how many generations are you planning for?”
In past, for instance, when the idea of gifting land to a non-farming child came up, the focus would immediately go to the tax implications, which are still important and do get close scrutiny.
But now there are more technical questions and concepts too.
There are discussions not only about whether the corporation owns the land or whether Mom and Dad own it, but also about which one should own it, and how that affects the structure of the farm overall. In many cases, Good-Hassard spends a lot of time with families dissecting “do you own what you actually think you own?”
A major trap Good-Hassard sees as a child beneficiary that either has a mortgage on the land, or is being used as security for the operation. This raises many questions, such as should the non-farming child, as just one example, step up to help Mom and Dad with their retirement and health expenses.
And at the same time there is another fundamental shift getting underway, says Good-Hassard, “There‘s a mindset shift.
“We really are turning our focus to access,” she says. In fact, you feel her want to put the word in capitals as she says it. “We are putting our focus on the business’s ACCESS to that land, be it either family-owned and/or third-party rented land.”
And that’s only part of it. In another difference from yesterday’s succession planning, farmers can expect much more emphasis on integrating their succession and their business plans, and to ensure that both are consistent with the farm’s long-term visions.
So, although the parents and the non-farming children might initially have been thinking simply in terms of gifting the land through the estate, perhaps it could be matched with a covenant requiring the land to be rented back to the farm at set rates for a specific number of years, now the discussion is broader.
If the land transfer imposes additional costs, which seems likely, can the business afford it? Will those costs prevent the farm from growing as it needs to? Would the farm’s reduced equity restrict essential financing opportunities?
This bridging of the succession, operating, business and estate planning is a pattern that today’s families need to prepare for whatever the topic is on the table.
“I have a soap box,” Good-Hassard warns. “These are living documents. Our business plan is dependent on the estate plan, and vice versa. When we change one, we have to ask how that should be reflected in the other.”
In fact, Good-Hassard counsels the senior generation in her succession clients to write their wills for no more than three years, so they’ll be sure to revisit and revise them as the succession discussions go on and the plan begins to take effect.
Later, after the main succession terms are agreed on and implementation is well underway, Mom and Dad can write more permanent wills, but that doesn’t happen instantly.
Plus, for their own part, the younger generation can expect some pressure to write their own wills too, which Good-Hassard says is another of her soapboxes.
This is also a good point to note another change. Through succession, the priority naturally falls on the internal team, which means there needs to be clarity on who is on the team and on whether other family members can join the team, and what they will have to do to get on it and what will be expected of them.
That isn’t entirely new. But, says Good-Hassard, what is new is that the process doesn’t stop when a family member isn’t in the inner circle.
“Sometimes as an industry we rag on the non-farm children,” she says. “I am pushing the parents — are you really setting up your off-farm successor for success?
She goes on to explain: “I call an off-farm child who is going to inherit land a resource manager. So, are we putting in the time and effort to educate and help them manage this resource? Can they answer questions like, why shouldn’t I sell tomorrow, what goes into a rental agreement, why is the farm so dependent on the land to buy machinery?”
“Segregation is good,” Good-Hassard says, “but we can segregate too hard.”
And some surprises
There may also be some surprises for Mom and Dad. Initially, the parents may be thinking the non-farming children will be required to rent the land to the farming child for a set number of years, the farming child may be expected to buy the land according to a pre-set formula down the road. Or there may be discussions about gifting the non-farming child shares in the family corporation instead of land.
The parents then are shocked when the farming child pushes for a quicker, more complete separation even if it may mean taking land out of the operation.
Today’s farming junior generation sometimes prefer not to be tied to their siblings for an extended period. “Now,” says Good-Hassard, “the farming children are saying I don’t want that dynamic. I’d rather lose acres and know about it and plan about it accordingly from my 30s or 40s onward instead of having the outstanding IOU of paying off a sibling and the family dynamics implications of that. I’m empowered as a young farmer with this knowledge now and can adjust my business plan accordingly.”
Putting it all together
Plus there is the long-term strategic thinking to do. Good-Hassard, for one, is concerned about the larger implications of the way more acres are going to non-farmers. Will it see more land come onto the market more suddenly? And with less consideration for the local community?
“I really hammer the families I work with; what pieces of land are going to go after if it does come up?” she says “What can you afford and when? What happens if multiple pieces you rent all come up within a shorter time frame? Are you focusing on landlord relationships? Proactive scenario planning… And how can the farm get ready to jump in with a winning bid when they do.”
Of course, there are those other family goals to consider too, like retirement planning, corporation shares and grandchildren, which means that, from the outside, fitting it all together can seem impossibly complex requiring an impossible amount of commitment.
Yet Good-Hassard says one of her tests is to demonstrate to the family how it is actually achievable.
And again, she points to the strength of the farm family. “There’s a lot of pressure, I understand that,” she says. “But I see the resiliency and the grit and the passion of both generations. Lean on your internal family team and external team of advisors to find out what is possible.”
In summary, Good-Hassard shares her quote: “Unspoken expectations are the silent killers of family farms.”
