Sucession planning

[CowgirlJamie]

Hey all! I am new to Agrillve.

A little bit about myself, my husband and I ranch in B.C. 500 cow-calf (Herford cattle) and we are looking into farm succession planning and we are really struggling to find a good approach that works for everyone in our family. We have three kids who are interested in being a part of the operation, but right now it would only sustain about two families. Has anyone been through the succession experience? Any advice would be great!

[Mufferaw]

Find someone with a ag background preferably beef that can walk your family through the exercise of succession planning. It creates those hard discussions today but in the long run you are further ahead. I can only speak to the case where little or no thought was put into succession planning. Speaking from experience it's an absolute disaster when it's left to "the kids can work it out"

[wlc]

Hi there . For good advise contact
Allison Guichon @ Quilchena 250/378/9734
She is an educator with Holistic Management Internatiol & has learned about family planning

[kato]

A good farm experienced accountant can help a lot too. There are ways to do it that work best for everyone, and the tax consequences of a wrong move can be painful.

[grassfarmer]

Succession planning or family planning?, lol there is a difference!

[CowgirlJamie]

Thanks for the advice!
I might try and reach out to Allison. My husband is a bit uneasy about bringing in a third party, as he views it as a family matter. But as you all know farming is complicated because it is both a farming matter and a business.

Grassfarmer – my question was about succession planning trying to come up with a five to eight year plan for our kids to take over the family farm.

[kato]

There are so many ways to do it that sometimes a third party can see things you don't.. You don't have to do anything you don't want to, and you can always get second or even third opinions. I would still recommend running everything by your accountant though. I work for accountants during tax season, and have seen a few scenarios that didn't turn out like they were planned.

[smcgrath76]

I would also suggest reading some of the stuff from Elaine Froese. She brings a good perspective on the family side. If your kids aren't married yet, be aware that marriage and kids change a lot of things from their perspective.
We have used third parties here including John Reid through the CAPP program (I think that was what it was called), our accountant, lawyers, etc.
The transition can be complex if you want to avoid as much tax as you can while everyone realizes the realities of business.
Our plan here was to expand, rather than buy out mom and dad directly and use the extra cash flow to help fund retirement (like a dividend). I also have other siblings that are not involved. One farms and used some of our equity at home to launch his operation, others will get life insurance on my parents passing, etc.
We actually formed a partnership prior to making any moves, as it gives you some flexibility if you wish to move to a family farming corp.
Lots of options, and it is a family issue but I have never met a family that has all the resources within the family to figure it out.

[Bez]

Well, one of the things we did was buy a couple million dollars worth of life insurance.

It also now provides us with some tax free income if we draw off of it. A bit daunting at first as the price was pretty high - however the policy has grown by about 35% and whoever gets the place does not get the money - or if valuations change only gets a part of the cash.

Only two more years to pay on it and it becomes self sustaining and continues to grow.

Lots of ways to do things, and this is only one facet of our plan, but the money when we are dead will make the "grief" less painfull. LOL

It will also pay off the non-farming kids and any expenses to the place that might be there when the last of us finally kicks off. That tax free bulk money will fill a large portion of the void and perhaps keep the in-fighting to a minimum.

One final thing - no matter what you do - be sure to be open about it - no surprises means everybody knows what is happening from day one. Far too many keep it all a secret and we all know someone who has been in a serious family fight over the land.

We review ours on an annual basis - with all players at the table - it keeps the potential mess to a minimum.

Best to all

[Beef4lifeguy]

After reading this thread it has become clear that this topic is not black and white…lots of things to consider that’s for sure. I would like to build on Bez point about no surprises – this is HUGE. My parents had told me one thing and then once they passed, it was another thing in the will. It made the grief process that much harder.
I never even considered the life insurance.

Bez did you guys do this long ago? If you don’t mind me asking… who long have you been paying it off?

[Bez]

Beef4lifeguy

You are one of the many examples of someone who got smacked simply because secrets were kept, money was not designated and open and candid discussions did not take place and nothing was ever recorded and notarized. I think I mentioned this in my first post on this topic. We all know someone....

And the funny thing is this should be completed even if the parents are under 40. Why? Because next week they could both be written off in a car accident. And trust me it does happen.

And then someone else will decide how the farm is broken up - so while a will is important so is a plan for those who might want to farm - or at a minimum get their share of the farm when you and I and all our friends are dead and dust in the ground.

Without going into the fine details we went with a product from London Life called the 20 pay life insurance - and we crunched it down so we could pay for everything in 12 years - ten are done and 2 to go. There is additional cash that grows in the policy that if we want we can take out - and it works out to be tax free money. Remember this is a long term thing and not everyone will be interested in it. However it does make it easy to split things up because someone will get the land and others get cash in leiu - which saves court battles after the fact - and those DO happen.

As an aside - my friend recently bought a place - he put long term life insurance on his folks and used the money when they died - sounds cold? Well when he discussed it with his folks they encouraged it. As his Dad - who I knew very well said - "We are all going to die and if the kids can make some cash off of it - good for them!"

As always everyone has a different plan and everyone has different ideas.

The big thing I found is everyone wants to think they are the expert. The accountant wanted to recommend a certain type of life insurance. The lawyer wanted to recommend an accountant. And they all wanted cash for their advice.

I got ticked at them all - I do not go to the mechanic to get my teeth fixed - why would I listen to my accountant about life insureance? He does taxes.

And the beat goes on.

So we went one better. We went to them all and WE made the plan and decisions.

However the one good thing about going through an insurance company for some of the advice (actually, most of the advice) was they provided an accountant and some ag advice from another "expert" at their cost.

Because we had younger kids at the time we also looked at and did set up a portion in a trust in event we were both written off in an accident. That was administered by two family members, two close farming friends and an honest broker who is a businessman who knows nothing about ag - that honest broker was important to us as an outside opinion in event of a dispute at the table. We wanted someone who would look at things independently.

No matter what you do, it will be different from us, your neighbours and possibly other people that you know.

But I now am a believer and would tell anyone - get it done now - and do not let your personal prejudices about certain items - ie using life insurance as a tool - cause you to not look at ALL the options.

By the way - my disclaimer - I do not sell insurance and I do not give advice for a fee - I am simply a guy who does his best to raise his family.

Best to you

Bez

[wlc]

Excellent input Bez .You hit the
nail rite on the head .All readers should take heed .

[Cowcrazy100]

You’ve given me lots to think about Bez.

Succession planning is a complex topic because it’s not the same for everyone… I think for me that’s what I struggle with. What works for one family might not work for another. Every farm business is different and every family is unique. I think that I need someone to sit down with my family learn about our situation and then say ok here are your options. Often, some things you might have never considered if it wasn’t for someone from the outside coming in to help.

[smcgrath76]

CC100 - you are right with your last comment. We spent quite a bit of money at the accountant and they wound up saying here is option a, b, c, etc. but not directing us. To be fair, that was our fault as we did not go in saying "here is where we want to get to, how we think our business will look (size, people involved, people entering and people leaving, etc.) and what we want to do. When we did go with this approach it was way cheaper, they could specify the best options and the results were much better.
The whole family dynamic and goals need to be discussed prior to the legal/accounting/etc. if you believe that a business is there to support a life and not the other way around.