Why every grower needs two succession plans
It was a gorgeous spring morning in Maine, and our client Jim was moving his water tanker from one parcel of his sprawling farm to another, over a winding and hilly country road. It was Jim’s last chore of the morning. After lunch, Jim had a meeting at his attorney’s office with his cousin and business partner. They were to put the finishing touches on the farm succession plan we’d been working on for the past year.
As Jim rounded a bend and crested a hill, his heart stopped. There in front of him was the son from the farm next door, driving a box truck full of eggs, straddling the double yellow line, and coming at Jim head- on. As Jim’s life flashed before his eyes, he wrenched the wheel to the right, sending his tanker careening into the ditch as the box truck hit him …
By its very nature, farm succession planning is a challenge. We ask our clients to prepare for the day they can no longer be at the controls of an operation they have grown and nurtured for 20, 30, 40 years or longer. None of us wants to contemplate that.
Adding to the challenge: In our combined 80 years experience in succession planning, we’ve come to realize that every operation needs not one, but two succession plans.
Everything goes perfect
We call the first plan the “Everything Goes Perfect Plan.” It’s the roadmap for when life works out exactly as planned. You never have a bad crop, you and your spouse are never sick, the children grow naturally into their management roles, and all the children and their spouses (even the ones who didn’t grow up on a farm) get along and accept the sacrifices and time commitment. Mom and dad get to retire at the time of their choosing, remain financially independent of the operation and live out their retirement dreams.
The Everything Goes Perfect Plan is important. It gives a goal and a direction for long- term planning. How do we prepare the next generation to take over? Which of the children should manage which part of the operation? Where will mom and dad’s income come from, once they stop farming, and how can we minimize the taxes? How do we hedge against foreseeable risks, like inflation, outliving their assets, or the financially devastating probability of needing long-term care?
Every operation needs a second plan
But every operation needs a second plan, which we call The Egg Truck Plan in honor of Jim. What if the unthinkable happens, and you don’t get the chance to live out your dreams? What is your contingency plan to keep the wheels from falling off the operation, and your family from spiraling into arguments and acrimony if you die, get sick or get dementia? Is your family and operation prepared?
Having good intentions doesn’t guarantee success. Both plans must address a range of issues: Who will own the operation? Who will manage it? How do we keep key non-family managers on board? How have you communicated your intentions to your family? How do we prevent a breakdown of trust and communication among the children who are in the operation and the ones who have chosen a different path?
Are your legal documents (wills, trusts, powers of attorney, etc.) up-to-date? Or are they the same ones you executed 30 years ago when your oldest child was born? Do they transfer the farm to the right parties, with appropriate protections against divorce and poor choices? How do they treat the children who are not in the operation? Will your surviving spouse be financially independent of the operation?
If there is a buy-sell agreement, is it tax-efficient? Is it affordable, or will it bankrupt the buyers? With land values skyrocketing in many parts of the country, is the value in the agreement “fair” to both buyer and seller? If there is insurance associated with the agreement, are the policies healthy? Or have they been adversely impacted by the stock market or interest rates?
We’ve had lots of farmers, growers and ranchers tell us “We have a plan.” But our experience is most operations have one plan or the other, but not both, and many have no plan at all.
If your operation doesn’t have both an Everything Goes Perfect plan and an Egg Truck Plan, it may be time to upgrade your planning to protect your family and the farm.
Jim wasn’t belted in, and he broke several ribs as the tanker rolled into the ditch. Luckily, he survived. But in a cruel twist of fate, 2 1⁄2 years later, his brother was hit head on and killed by a pickup truck which hit a patch of black ice. Jim’s request of us? “Keep telling that egg truck story. None of us know how much time the Good Lord will give us, and we need to be prepared.”
Our next article will explore the surprising reason why most family business succession plans fail.
Disclaimer: Agribusiness Succession Advisors’ Jeffrey DeWald and Michael Cohen are registered representatives of and offer securities and advisory services through Lincoln Financial Advisors Corp., a broker-dealer (member SIPC) and registered investment advisor. This information should not be construed as legal or tax advice. You may want to consult a legal or tax advisor regarding this information as it relates to your personal circumstances. Agribusiness Succession Advisors is not an affiliate of Lincoln Financial Advisors. CRN- 5934717-090723