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Challenging Situation

B

burnt

Well-known member
Joined
Feb 28, 2008
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6,617
Location
Mid-western Ontario
Farm succession.

Big challenge when one of the kids finally breaks the conversation open, looking at the possibilities of taking over.

Lots of ways to go about it, some fairly conventional and others a bit more innovative.

It's a really big deal with land values where they are - gotta keep in mind that there isn't just one child in the family, how does one work it out fairly to all of them?

It means more than just selling the farm - it means making a bit of an evaluation of one's whole life philosophy that has developed to this point. Or maybe I'm making this into more than it is?
:?

Anybody have stories to tell about their experience?
 
All I can say is lots of PRAYER! We didn't do so good on both my folks place and my Granddads. Granddad, had his set up in a trust, which was supposed to have kept it all in tact, but it took less then 5 years for the family to break it, and get the whole thing sold off. On the folks, my brother bought it at the last minute. Folks had it sold for twice what he paid for it, but he came in and bought it. Needless to say, I am not impressed. Seems like in our family, the ones that never did anything on the places, are the ones that end up with the control.
I shouldn't be bitter towards my brother. He offered me a chance to buy in, but I don't think it can work financially.
 
FWIW - every situation is different, but they share a lot of the same problems.
We are a 5th generation ranch with 3 brothers and 2 sisters in my generation. In some respects we are lucky because my brothers each had somewhat different plans than taking over/expanding, and my sisters don't have the skill set.
A couple of things we learned...
1) start talking about things early on. We are already working with our kids (age 8, 6 and 3) to help them understand about the ranching business, scale, future opportunities and expectations around here.
2) have some idea what you want to do/have your business look like before you go visit your accountant. If you just show up and say we want to change generations then there are 100's of options and they can explain them, but can't make a firm recommendation/set of steps. This takes a lot of time, provides no real answers and results in a hefty bill.
3) there are a lot of good and low cost places to obtain expertise. Look at the C-Team Program with the George Morris Center as they do a farm business program that includes succession. (If interested PM me, I have a connection with the program) :D
4) In Canada there is an option if you are a family farm (not a corp) to go into a partnership for at least 3 years and then roll into a family farm Corp. These have special tax privileges - I am not an accountant but even I understand they can be good.
5) fair is not equal and equal is not fair. If someone is coming back to contribute their sweat, blood and tears that is worth something.
6) life insurance can help - my parents have a life insurance policy. When they pass that money is designated to my non-farming siblings. Farm assets are designated as our inheritance. Everyone gets a share but the business is protected.
7) our farm Gen 1 through 4 have always bought the farm from the generation before. In essence we have purchased the same equity repeatedly. With current land values we have decided here that our course of action is to leverage what has already been paid for and expand. The added cash flow helping to fund "retirement" for mom and dad, rather than the equity from the sale of their land. Reality here is if I paid fair market for the land base (Tanya and I brought some land into the deal too) I would be tits up broke in 6 months ($400K for a quarter to run 15-30 cows).
8) The successor needs responsibilities and skills. Part of the reason we are back is that we have (I hope) the skill set to run a modern ranching business. While not anyone can chase cows, not anyone can negotiate finances, business planning, etc.
9) I work really well with my dad, that helps. It helps if everyone is mostly and honestly ready to undergo big change and shifting of responsibilities. In my mind a succession plan does not mean kids do the work and parents keep the chequebook. (I know some situations like this where the parent and child are in their 80s and 60s respectively).

Every situation is different. I have a friend who is buying the farm from his parents for the same price they paid for it. They have saved and built a retirement fund from the business, and can pass on that opportunity. Not everyone is so fortunate or has the same set of beliefs.
I'd better stop. I could go on and on and on. There are trillions of dollars of assets out their in the farm family community and I would guess that very little of it has a succession plan and a lot of it is held by folks in their later stages of life.
 
What's fair is not equal and what's equal is not fair.
If some kids had college paid for and has a good job and one stay home and work for very poor wages on the farm, he should get more of the farm.
If you can in your State a Limited Family Partnership is not a bad way to go. It leaves out in-laws and can be blood family only. 1% of the shares can control all the others. Shares are responsible for expenses and may or may not get any of the profit. Then you have a buyout clause that can only be sold within the Partnership and usually is a big discount on the dollar
 
I'm on the other side of it younger guy (31) looking to take over in the coming years as my dad looks to scale back. I have 1 sibling and she has nothing to so with the farm but she may get half and then I buy her out. As said above whats fair isn't equal and what's equal isn't fair.

These situations can be tough so I would like to hear from others how you went about it..
 
Point 9 of RSL says:

9) I work really well with my dad, that helps. It helps if everyone is mostly and honestly ready to undergo big change and shifting of responsibilities. In my mind a succession plan does not mean kids do the work and parents keep the chequebook. (I know some situations like this where the parent and child are in their 80s and 60s respectively).

My Dad moved to town years ago but remained a partner. The main check book was mine from that day on and things have been really smooth. My caution for you RSL is to get psychologically prepared for when he is not there to help or fill in the holes or able to actually physically contribute and I suppose mentally as well. When my Dad (who does help occasionally still especially when cows are involved) was not able or did not want to contribute in a substantive way the fun of it all took a bit of a hit. Of course mentoring the next generation can fill the gap when you sit down and analyse it a bit.
 
My only suggestion is to they who have children, everyone be 1st given the opportunity to remain on the land from the get go if they wish....girls are just as capable as boys...
 
per said:
Point 9 of RSL says:

9) I work really well with my dad, that helps. It helps if everyone is mostly and honestly ready to undergo big change and shifting of responsibilities. In my mind a succession plan does not mean kids do the work and parents keep the chequebook. (I know some situations like this where the parent and child are in their 80s and 60s respectively).

My Dad moved to town years ago but remained a partner. The main check book was mine from that day on and things have been really smooth. My caution for you RSL is to get psychologically prepared for when he is not there to help or fill in the holes or able to actually physically contribute and I suppose mentally as well. When my Dad (who does help occasionally still especially when cows are involved) was not able or did not want to contribute in a substantive way the fun of it all took a bit of a hit. Of course mentoring the next generation can fill the gap when you sit down and analyse it a bit.
Click to expand...

Thanks Per. That is very appreciated and sage advice. One other point is that a succession plan is never done. Even though the business transfer stuff is largely sorted out here, life continues to go on and evolve and our day to day and life expectations have changed a lot over the course of time. One discussion we are having around here is what to do, how to deal with the day when one or both of my parents require additional care and are out of the day to day. If it wasn't for the human part succession is pretty easy.
 
Yanuck said:
My only suggestion is to they who have children, everyone be 1st given the opportunity to remain on the land from the get go if they wish....girls are just as capable as boys...
Click to expand...

Amen to that.


I get along with my father and have worked for and with him forever. It will be tough as he at 90 still lives in the yard and is outside quite a bit. We are partners but operate separately and he has wound down his operation. I have 2 kids that are around the ranch and a third that enjoys the ranch and would like to be a part some how although she is not living close by and has a career/ business that her and her husband are growing.
It's not easy being the sandwich generation. :?
 
4Diamond said:
I'm on the other side of it younger guy (31) looking to take over in the coming years as my dad looks to scale back. I have 1 sibling and she has nothing to so with the farm but she may get half and then I buy her out. As said above whats fair isn't equal and what's equal isn't fair.

These situations can be tough so I would like to hear from others how you went about it..
Click to expand...
I have been on the farm my whole life, my sister on the other hand couldn't wait to leave here. She moved to Florida as soon as she got out of college, which was 5 hours from home. My parents have it set up so that if something would happen, or they want to retire that I would get all the machinery since I helped my dad aquire it. Everything else would be split equal. We are more farmers than ranchers so this would amount to quite a bit for me. On the other hand by the time my dad realisticly want to quite I will own more than half of the equipment anyway at the rate its going. I am sure she will want to sell out, then I will have to come up with a bunch of cash to keep the ground. This is a very complicated situation for sure. If your talking more to the point of when you die, I would deffinently think of how your kids are going to be able to keep your stuff and not sell everything for the death tax. My parents have a huge life insurance policy strictly to pay the death tax. What a crock of crap. They already paid tax's on that money they made once. :mad:
 
Farm Journal did quite a lot on succession. They used Kevin Spafford and his company "Legacy by Design". It was an interesting project to follow since I recently went through this. I was born & raised on my family's farm. 4th generation. Staring in 1978 my brother & I bought any land that was added to the original acreage. Dad was still active but said he didn't want any more indebtedness. In 2005, Dad's health reached a point he could no longer participate. To make a long, ugly story short: only machinery & cattle were appraised. My sister, who lives on the west coast and has no clue about the farm, was given a piece of land equal to 1/3 of that appraisal as was I. My brother now farms the entire place. I am not welcome nor allowed on any part of it. The land my brother & I bought together, I was paid $50 an acre rent. Two years ago, I said screw it and sold out to him. My parents made my brother a very wealthy man and at the same time, destroyed our family.

Whatever you do in your situation, do it with as much thought and fairness as possible. Your actions will either make or break your family and that will reverberate forward for many generations.
 
It is impossible to define fair when it comes to this stuff. My grandma has lived long enough, and my dad been lucky and successful enough that he bought the ground from my grandma a few years back at a fair price. Not auction price, but a fair price. Now all the six siblings have is basicly money to split up. I know this isn't realistic in most cases, but whith my familys history about getting in a pi$$ing contest over nothing, it seems the most simple with this many people. The only thing the siblings in the city see is dollar signs and their percent. They don't think about when it's 110 degrees and your out there working on a broke down combine trying to get the wheat cut before a storm, even when it's on your dad's ground. Or picking corn for 30 hours straight to get done before a blizzard. Or feeding cattle in a blizzard for dad when he's in California on vacation. How do you quantify all of these things when it comes to splitting up an estate? To be honest I don't think my dad owe's me anything, he gave me an oportunity to get started, and now I am successful on my own. But what chaps my hide is when the city sibling always think they are owed their share of the inheritance and thinks if it's not exactly equal percentage wise they are getting hosed.
 
3 M L & C said:
It is impossible to define fair when it comes to this stuff. My grandma has lived long enough, and my dad been lucky and successful enough that he bought the ground from my grandma a few years back at a fair price. Not auction price, but a fair price. Now all the six siblings have is basicly money to split up. I know this isn't realistic in most cases, but whith my familys history about getting in a pi$$ing contest over nothing, it seems the most simple with this many people. The only thing the siblings in the city see is dollar signs and their percent. They don't think about when it's 110 degrees and your out there working on a broke down combine trying to get the wheat cut before a storm, even when it's on your dad's ground. Or picking corn for 30 hours straight to get done before a blizzard. Or feeding cattle in a blizzard for dad when he's in California on vacation. How do you quantify all of these things when it comes to splitting up an estate? To be honest I don't think my dad owe's me anything, he gave me an oportunity to get started, and now I am successful on my own. But what chaps my hide is when the city sibling always think they are owed their share of the inheritance and thinks if it's not exactly equal percentage wise they are getting hosed.
Click to expand...
Sweat equalty need to be figured too
 
There has to be more communication than what generally happens in farm families.
There's such a taboo when it comes to financial conversations. Finances and females. Ignore them and maybe they'll go away. For reasons that pre-date us in my area, many consider daughters more of a liability than an asset.
 
In my family ranch mom decied to divorce my dad this year, they have been married for 59 years, we are in a 50 50 state however mother has been planning this for awhile, somehow she cut a deal with the FHA lady to get the farm on a single women loan, Dad is so crippled up he can not take care of them and since we buy all our hay this drought did him in and he sold out when we ran out of water, mother cut another deal with the FHA lady to take all cow money and put it in a FHA escrow so dad could not pay off the farm with it, mother does not want any of the kids to get the place and has disowned my sister and me, I had worked on the place for 30 years as a partner and was to take over four years ago but mother had her own plan, I bought a small place and rented two other places, where I have kept my purebred cattle at for many years, dad living with me , my sister moved out of state, mother had a pretty lonely thanksgiving as she has disowned the family and living on the farm alone and will not let us have our dogs either,
 
Hay Feeder said:
In my family ranch mom decied to divorce my dad this year, they have been married for 59 years, we are in a 50 50 state however mother has been planning this for awhile, somehow she cut a deal with the FHA lady to get the farm on a single women loan, Dad is so crippled up he can not take care of them and since we buy all our hay this drought did him in and he sold out when we ran out of water, mother cut another deal with the FHA lady to take all cow money and put it in a FHA escrow so dad could not pay off the farm with it, mother does not want any of the kids to get the place and has disowned my sister and me, I had worked on the place for 30 years as a partner and was to take over four years ago but mother had her own plan, I bought a small place and rented two other places, where I have kept my purebred cattle at for many years, dad living with me , my sister moved out of state, mother had a pretty lonely thanksgiving as she has disowned the family and living on the farm alone and will not let us have our dogs either,
Click to expand...

Sounds like a terrible deal to me. But just because she cut a deal with the FHA person does NOT mean it would withstand the scrutiny of a good attorney. I wouldn't take this laying down. I don't like giving advice like this but in this case you and your dad need to go talk to an attorney. Run, don't walk!

Good luck!
 

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