11 Don’ts of Succession and Retirement Planning
In her 17 years at AgCountry Farm Credit Services, succession and retirement planning consultant Marlene Bradbury has seen plenty of transitioning families learn lessons the hard way. She is passionate about helping other farm families avoid the same mistakes. Recently, she shared her professional experiences with women attending American Agri-Women’s National Convention in Minneapolis, Minnesota. Her Get Your Boots… We’re Digging In! Succession and Retirement… Where to Begin breakout used examples to highlight the steps and importance of planning.
1. Don’t think planning isn’t for you.
“Planning is for everyone,” Bradbury emphasizes. If you’re starting out, planning will help you take advantage of programs designed for young farmers. Even after you have several seasons under your belt, planning helps you minimize your risks and maximize your efficiency. Looking toward retirement, planning will ease transition and set clear expectations for everyone involved in the operation. No matter your stage or farm size, planning will help you protect your assets. Ultimately, it affects the bottom line.
2. Don’t stop with a will.
A will is an important document and a great starting place in the planning process. But do you have a durable power of attorney and health care directive established, asks Bradbury. Are your deeds structured properly? Who are your beneficiaries? Make sure your documents are aligned to work together in the case of an unfortunate event. Beneficiary designations for life insurance, land ownership structure, and ownership of bank accounts are commonly overlooked. Conflicting documents can lead to confusion, frustration, and misinterpretations of your wishes. If you are transitioning the farm, your will should facilitate, not disrupt, transition.
For example, if two people own a piece of land as tenants in common, each person controls a half. If one dies, their half of the land is dealt with as outlined in their will. However, if the land is deeded as joint tenants with rights of survivorship, both parties own the tract as a whole. When someone dies, the entire piece of land is automatically passed to the other tenant, even if the will says differently. Check your state’s law to see what the default interpretation is for two owners with unspecified terms, and make sure your wishes will be carried out as you intend.
3. Don’t let documents get out of date.
Birth, marriage, death, and divorce dramatically change people’s lives. Make sure your plans grow and change along with your family. If something happens to you, and your ex-spouse is still listed as a beneficiary, or a child that has been born since your will was written isn’t included, the legal implications may disrupt your intentions.
4. Don’t keep your plans a secret.
Communicate with your family. While conversations about death or disability are never easy, they are important. Keeping your wishes a secret may create more questions, misunderstanding, and hard feelings after you are gone. For generations following in your farming footsteps, not knowing your intentions may cripple their decision-making abilities, adding undue stress and anxiety.
5. Don’t leave out your team.
Planning can’t be done alone. It is important to ask for help. Bringing the experts involved in the operation to the table will result in a more well-rounded plan. For best results, seek out trustworthy professionals experienced in agriculture. A CPA may be able to evaluate the tax implications of a plan, while a loan officer may be better suited to compile a balance sheet and cash flow. Attorneys and insurance agents also have important perspectives to include. Be sure pertinent family members are present, and don’t be afraid to hire a third-party mediator if necessary. If you partner with a neighbor or friend, make sure they are involved as well.
6. Don’t confuse equal and fair.
On many family farms, there isn’t a desire, or room, for all the children to come back and make a living on the farm. That makes it difficult to divide assets in times of transition. “This is the most emotional part of succession planning,” Bradbury says.
Splitting up the land, livestock, and machinery equally between farming and nonfarming children may not be fair to the person making their living on the farm. Don’t be afraid to think outside the box in this situation because no two farms are the same. Carefully consider how you designate options and rights to each beneficiary. Options and rights are different.
Bradbury asks, could the farming child have the option to buy the machinery at a discount with the purchase amount being divided among nonfarming children? Should they have the right of refusal on ground they farm? Try to use language that allows for fluctuations in markets and assets rather than hard numbers that may become outdated. Also, keep in mind the plan may need to be implemented unexpectedly. You don’t want to force the farming members of the family into a precarious financial situation because they suddenly have to take on extreme amounts of debt.
7. Don’t make assumptions.
Again, communication is key. “Assumptions need to be communicated before they turn into arguments,” Bradbury says. “A lot of times it’s not the farm that is falling apart. The communication fell apart.” It is important for parents to be on the same page. Make sure everyone at the table is committed to the future of the farm. Are spouses involved? Assumptions about a nonfarming child’s wishes, or farming child’s plans can be hurtful, and a barrier to moving forward.
8. Don’t forget to be realistic.
How many families can the farm really support? Can everyone survive comfortably with your plans? Take time to look at the dollars and cents of your decisions. Allow for the fluctuation of the market and time for incoming generations to build capital. Being honest and realistic upfront about what is possible will save heartache down the road.
9. Don’t rush.
Bradbury tells new clients, “This is a journey, not a two-hour meeting.” When you try to lay out all your plans in one short meeting, impulsive decisions get made, and it is easier to overlook important details. Give yourself time to sort through the emotional decisions you’re making to determine your true wishes.
Taking five to 10 years to allow transition to occur allows incoming generations to gain management skills and confidence as they adapt to change. Gradually shifting responsibilities and assets also gives parents and grandparents time to adjust to not making all the decisions.
10. Don’t gift without documenting.
While it might seem obvious, or simple at the time, be sure to document what you gift and receive. If something happens to the giver, or receiver, the best way to ensure wishes are clear is through documentation. Even if no money is exchanged or the item only has sentimental value, this can be done through a bill of sale.
11. Don’t delay.
“Give yourself peace of mind,” Bradbury urges. Start the process now. Planning is one of the best gifts you can give your family. Tomorrow is never promised.