Farm Transition Planning as Compared to Preventative Health Care
Farm Business Management Update, December 2008 - January 2009
By Matthew I. Miller (firstname.lastname@example.org), Extension Agent, Farm Business Management, Southwest District
It is hard to pick up a farm publication recently without finding some article pertaining to Farm Transition. For the sake of this article “Farm Transition” will be discussed in terms of passing the operating farm on to the next generation. I enjoy working with farmers and have always enjoyed the practical, logical approach that most farmers take when tackling a task. In that vein, let’s talk about Transition in a way everyone can understand and appreciate. Throughout our lives and the lives of our loved ones we all worry and often deal with health issues. What we all know is that prevention and early diagnosis is typically the best management for beating major health challenges. Well, Farm Transition is no different; in fact, it is very similar.
Early Warning Signs: No different than a persistent pain that needs attention, transition issues often begin early and continue to fester and grow. Dr. Danny Klinefelter, Texas A&M University, lists 5 traits or problems that can exist with family farm transition. These 5 traits are as follows: dictatorship, secrecy, inability to admit to being wrong, unresolved conflict, and failure to fight fairly. If these were health issues they could all be classified as cancers. These traits are not only the crux of many of the farm family transition failures they define for most the challenges of working and living with the same individuals. It is common to hear stories of fathers who won’t turn over control, or children who ask their parents what the transition plan is and are told simple “It’s taken care of.” Dictatorship and Secrecy result more times than not in unresolved conflict and eventual business failure.
Early Diagnosis: Why is it that Transition discussions never happen? No one likes to go to the doctor. Often we are afraid of what they will find. However, those who address problems early are most likely to conquer them. Transition issues are exactly the same. Transition must be addressed early and often. Just like good health care, seek a competent team of advisors and in many cases get a second or third opinion. Often with health issues there are multiple means of treatment; this tends to be the case with transition issues as well. There is no cookie cutter template for addressing transition. Each farm, and certainly each family, has different circumstances, challenges, and desires they wish to accomplish. In any discussion on Transition, the most important event that must take place for success is communication. Communication is early diagnosis. Parents that claim to know what their children want but don’t ask are just as guilty as children who make plans without acknowledging the parental generation. In many family farm situations this includes a grandparent generation who may still have ownership with little control of day to day decisions but all of the control over farm assets. When there is no “Early Diagnosis” the outcome of any late term treatment is poor, but just like cancer or any other progressive disease early assessment of the condition typically yields very positive results and often a complete cure. You must ask yourself which is easier: the check up, the treatment, or the slow death? Hopefully most of you will opt for the routine check up.
Treatment: Transition issues can seem overwhelming but if addressed early there are many successful methods of “treatment.” Communication both with the internal members and external advisors is needed to be successful. Once a dialogue has been created both internally and externally the key issues will be determined. All of the participants need to understand the financial ramifications of the transition. What are the tax implications, the retirement income options, the estate plan, and our long term goals? These questions will all need to be answered if the transition is to be a success. Transitions are not impossible as the long production agriculture history in Virginia indicates. It is not uncommon to find more than three generations still farming the same land in Virginia. Certainly changes in land value, and changes in family values, place increased pressure on a successful transition but they are achievable.
Misdiagnosis: Finally, in almost every discussion I have been a part of pertaining to transition the conversation turns to a production issue. Who gets the tractor? Is there profit in farming? Why does the son want Hereford if the dad wants Angus? Beware of becoming sidetracked on the issues that really don’t impact the transition. Discussion on production issues is easy, it is not only what the parties know, it’s what they like and typically what they argue about. These issues are not really the major transition concerns. They may be indicators of bigger problems, Trust, Communication, Secrecy, etc., but what fence you want to build really will have no bearing on what estate plan you should take or what you need to provide for the off farm son who has taken up surfing in Australia with hopes of starring in a Baywatch return.
Success: In my dealings with farm families and the issues that surround transition, I have yet to come across a family that has asked the questions, got their answers, and failed. In that same breath I have yet to come across a successful multigenerational operation that never asked the appropriate questions and sought outside assistance that succeeded. Finally, the Farm Business Agents of Virginia Cooperative Extension are positioned around the state to assist with you with these issues. Ninety percent of the battle can be won by simply seeking honest input from all of the vested partners.
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