Handing on the Ranch: Tips for Succession Planning

Published on Thu, 10/27/2022 - 11:35am

Handing on the Ranch: Tips for Succession Planning.

 By Jaclyn Krymowski.

 Transitioning the family ranch from one generation to the next isn’t the same old song and dance that it used to be.

Full of complicated finances, legalities, costly assets, depreciation, multiple generations being involved and much more, developing a succession or estate plan is essential for minimizing stress and issues.

A proactive approach that involves reevaluating goals, establishing new ones and preparing for the changes all go a long way in helping the next generation step up with grace and confidence.

Pre-planning contributes to the long-term ranch organization and integrity in the event of an unexpected death or someone exiting a crucial role. It also takes advantage of those with strengths to successfully continue the business and focuses on the future of the operation’s needs according to a bulletin from the University of Washington, Succession Planning.

Getting younger family members involved with business ownership and management early on further establishes expectations and gives further learning opportunities and skill development. These will be essential when, sooner or later, they will be the elder generation and no longer have the same support or advice they once did.

“Every farm, ranch, nursery, dairy, or other agricultural operation is more than a business. It is a connection to family, tradition, and your legacy. It also provides essential food, fiber, fuel, and other benefits for society,” reads an excerpt from Oregon State University’s handbook Getting Organized: Business Organization and Succession Planning for Oregon Family Farms and Ranches. “While business succession and estate planning may be uncomfortable topics, open discussion and practical business decisions are necessary for the farm to serve its important roles to your family and society, protecting your legacy.”

Setting Goals
Succession planning should begin with goal setting rooted in both the full or partial retirement of current operators and the desires and specifications of the heirs wanting to step up. Setting up the initial goals will serve as a framework to develop the rest of the roadmap.

As always, it is helpful to consult with trusted specialists, preferably those who are familiar with your farm’s backstory and financial history. These might include CPAs, financial consultants, lenders and/or extension agents specializing in succession and estate planning.

On the homefront, familial communication and direct dialogue are important. Both heirs and retirees should feel free to speak openly and frankly about their expectations, concerns and contributions. Oftentimes these discussions are pushed back far too long, or people are afraid to initiate the conversation because they don’t want to be perceived as greedy or entitled.

But contrarily, open conversations about succession planning should begin taking place as soon as potential heirs express a sincere desire and commitment to take on the family business. The dialogue can address current issues and future resolutions that will make the near future even more successful for everyone involved.

Building a roadmap
Issues that arise during succession planning may consist of shifts in management, transitioning asset ownership, and potential disruptions in management/ownership succession, says Iowa State agribusiness extension agent Melissa O’Rourke in her bulletin Constructing a Farm Succession Plan: Elements to Consider.

There are two primary options for succession, either a single heir or multiple heirs. With a single heir, there is less risk with fewer disagreements likely to arise. Multiple heirs, on the other hand,  tend to bring more complexity to the planning. However, both require making sure the heir(s) are prepared and are comfortable taking over the management.

When multiple heirs are involved, communication becomes even more important and will help with determining what path to take for passing on the farm. Some may not have an interest in taking over the day-to-day ranch operations.

The American Farm Bureau Federation Financial Services article Your Complete Guide to Farm Succession Planning notes that some such heirs may desire a non-farming/ranching an inheritance via the passing down of certain assets (such as gas/mineral rights or rental properties). This may be split with heirs interested in the farm/ranch their inheritance would consist of land, livestock and/or equipment.

Another option for a situation of mixed interest heirs would be to allow each to purchase land from the previous generation after a period of time. Alternatively, a family may wish to evenly divide the farmland and allow them to do with their portion as they wish.

Succession planning should also address any power issues or decision-making control, according to O’Rourke. “This can also be addressed through a ‘power audit’ statement within the succession plan.”

Of course, the succession plan must be mindful and flexible with unexpected life events, such as an unexpected death, divorce, or bankruptcy. Regular communication, maintenance and working alongside your professional advisors will help alleviate stressors of the unknown.

Successful Plans
Any long-term decisions made for the ranch are always a family affair. Of course, there will be assistance from financial and legal experts to streamline the process, but beyond this are also finding the right people to help follow through after things are in motion.

The next generation taking over should have access to mentorship and resources to navigate the uncharted waters they come across. Even after spending a lifetime working in the same family business, when a young person steps up into a leadership role they will likely be faced with new challenges both they and the past generation have never encountered.

A good way to start, O’Rourke suggests, is building a farm management team that can assess critical situations and are able to communicate well with one another. This allows the current and previous generations to remain involved in decisions while slowly stepping back. It will help the younger to develop skills in multiple aspects of the business under a supervised setting.

Such a working relationship can be implemented well before anyone officially retires or anything legally changes hands. It doesn’t only need to be big issues, conversations can happen around feed or livestock purchases, recordkeeping, tax documents and more. This helps create a gradual process of onboarding and offboarding and keeps an open line of communication.

Succession and estate planning isn’t necessarily a fun topic for many farm and ranch families. However, it is a necessary one if the business and traditions are to survive into the future. While there are a slew of transitional challenges due to the complexities of the modern world and changing landscape of agriculture, there are also lots of resources available to make things as smooth as possible.

But to be successful, planning for the future needs to begin long before anyone is ready to actively retire or sign off on a deed. Instead, it should be ingrained into the fabric of the business strategy and kept openly discussed with all family members involved.