Farm and ranch succession seems to be one of the hot topics in meetings and magazine articles the past couple of years. If you read the Progressive sister publications to Ag Proud – Idaho, you no doubt have read articles about succession. Many of them are quite good, and I have clipped them to place in my farm succession file (yep, old school paper stuff) for use in our farm and ranch succession classes. According to the 2017 USDA Census of Agriculture, there are 2 million farms in the U.S., housing 3.4 million producers at an average age of 57.5 years old. According to an industry article, approximately 50% of the nation’s farmland will change hands in the next 20 years. What that all translates to is a vast amount of land and other farm assets that will transition to the next generation of managers in the not-so-distant future. Twenty years passes faster than we might like to think.
Farm succession doesn’t just happen, but then sometimes it does. The four D's (death, disability, divorce, dissolution of a partnership) can sometimes make things happen far sooner than anyone is prepared to handle. This article will deal with starting the prepared succession process, but it is important to keep in mind that “someday” may get here sooner than planned.
My colleagues and I teach a farm succession class each winter. We have heard some horrible stories of lost farms and ranches, families torn apart and, in one case, a shootout on the front lawn. I certainly don’t consider myself an expert, but I have worked with succession planning long enough to be able to offer a few suggestions or first steps.
One of the first things that should be discussed is the viability of the business. Is the farm or ranch financially solid enough to pass on? I graduated high school in the mid-'80s and wanted to farm for a living. My dad’s 100-acre farm wasn’t enough to fully support the family without off-farm work, much less another income. Now that my dad has retired from farming, he rents the place out. Our family farm will be disposed of with an estate plan, not a succession plan. The difference is a succession plan deals with passing a business on to the next generation while an estate plan deals with the disposition of the assets of an individual. The succession plan informs the estate plan. For example, in a succession plan, the tractors and equipment will be transferred to the new owner/manager, while in an estate plan, those assets would be sold or distributed as part of the estate disposition.
Over time, I think the most difficult task of a succession plan is getting the family started in the process by having family meetings to discuss the wishes and concerns of the family members with a stake in the business. Like planting a tree, the time to do it is today, or 20 years ago. There are many barriers to these meetings: awkward discussion of end-of-life details, family inability to communicate with each other, siblings or spouses who don’t get along, the parents’ desire to “keep things fair” among the kids, the list could go on.
Family meetings (notice the plural) need to happen, with an agenda, to get at important topics such as: who wants to work the farm and who doesn’t? Is there a good manager among the potential successors, and what do off-farm family members want from the farm? These are just some of the topics to be discussed.
Another critical piece is going to be a discussion of the farm financial situation. Think of succession as the succeeding generation buying a business. You would never consider buying a business on Main Street without examining the financial records and details – why would the next generation consider taking over a farm without having a sound understanding of the financial health of the business?
Family farms and ranches are different than other types of businesses because the place of work is the place of residence and where all the other major home-life activities take place as well. It is very difficult to separate the business from the family. For family meetings to be successful, there needs to be a clear delineation between the business and the family.
I am reminded of a line from the movie Pure Country, when George Strait’s character is on a Texas ranch, and he is talking with the old rancher and asks him how many acres he has. The rancher states, “A thousand. It used to be more, but I started selling it off a little at a time – it got to be too much like a business. I am a rancher, not a businessman.” That kind of thinking has no place in farm business management and discussions of succession.
If you haven’t already, start to think of your farm as a professional business. Farms today are major businesses. The amount of money that flows though a farm business is staggering considering the price of even a single piece of used equipment such as a tractor, forage harvester or combine. These can easily cost well north of $300,000. The days of a profitable farm consisting of a Farmall Super C cultivating corn behind the big red barn with a cow and pig in the corral are long gone.
Your succession planning process isn’t a one-and-done thing. The planning process is dynamic and can take a couple of years to complete the first time, but it must be reviewed as family and life change. Succession planning is a difficult process, but you must get started before you can complete it. I realize that sounds simplistic, but we know from people we have worked with, there are far fewer farms with plans than without.
Take a class, hire a consultant, talk with your accountant and attorney, find some professional help to get you started on your succession plan.
The University of Idaho Extension will be offering four seven-week succession planning classes this winter in the northern, western, south-central and eastern regions of Idaho. You can contact Steve Hines’ office at (208) 324-7578 for more information.
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