Nothing Sucks Like Succession

You know how difficult it was to have that talk with your kids about the facts of life? There is a talk that you need to have with your family that is even more difficult. It’s about the facts of death.   

We make all sorts of excuses to avoid it. In the short term, avoiding the discussion seems less stressful than dealing with what may be difficult and delicate issues.   We know that long term consequences of avoiding it can be disastrous.  The short term price of avoidance is continued stress and guilt.

Nobody wants to talk about it. Dad and Mom don’t want to talk about it because it means facing their mortality. Furthermore, they see the ranch as their legacy and want all of the kids to share in that, but they know that the ranch can’t support everyone.  They love all of their kids and want to treat them fairly, but somehow the equal distribution of assets doesn’t seem “fair.”   Then there’s the gold digger that Junior married and that bum your baby girl calls her husband.  Yes, they’ve been married for 10 years, but you know it isn’t going to last.

The kids don’t want to bring it up either. They don’t want to be seen as ungrateful vultures waiting for the folks to die so they can pick at the remains. But the clock is ticking and they need to know what the future holds.  The more years they invest on the ranch the less employable they become elsewhere.

No wonder we don’t want to deal with this.  Unfortunately, if we don’t deal with it we will dump a huge burden on the people we love most after we die, and that’s the best case scenario. More likely we will have sown seeds of resentment that can germinate into thorny relationships within our families for years to come. Oh, and while all of that is happening, our primary heir will be our Uncle Sam.

Ultimately we need professional advisors to determine the best vehicles to accomplish our goals. Before we meet with them there are some things we can do to lay a foundation for using them efficiently and creating the best plan possible.  In the next few editions of ProfitTips I’ll be sharing some thoughts about planning for succession.  I’m sure other ProfitTips readers would appreciate hearing your suggestions too. I know I would.

 

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  • 8/27/2013 7:50 PM Kevin Spafford wrote:
    Dave, I will gladly share my succession planning tips with you. Please feel free to contact me.
    Reply to this
    1. 8/29/2013 9:17 AM Dave Pratt wrote:
      Keven sent me an e-mail with a paper on succession planning attached. I thought y'all might find it enlightening: http://www.ranchmanagement.com/sallysilvia/5thingsinsuresuccess.pdf
      Reply to this
  • 8/28/2013 7:12 AM OogieMcGuire wrote:
    An even bigger problem is if you have no children. Please also discuss planning for succession when there are no heirs to take over the farming/ranching business and land. How do you find a suitable person to take over the reins? How do you start working with them so when the time comes they are ready? What if you cannot find anyone? What then?
    Reply to this
    1. 8/29/2013 1:32 PM Dave Pratt wrote:
      I don't know that having no heirs is a bigger problem....it is a different problem.

      You are asking a lot of big, important questions. I imagine the head of most family businesses would love to see the business stay in the family but if there were no family if we weren’t in agriculture, this wouldn't be as much of a problem. It's not that simple with ranches for a variety of reasons. Consider this…let's say that instead of a multi-generational ranch, we owned a mini-mart. I'm guessing that Grandpa and Grandma probably weren't laid to rest under the gas pumps. In ag we have a deeper emotional attachment to the land...sometimes six feet deeper.

      Another issue is that the mini-mart is probably a real business. The ranch usually isn't. Want proof? If you sold the ranch would you be selling a real business? Most of us would be selling a collection of assets. A real business is much more than that. If the ranch was a real business we’d solve this problem by selling it, and the legacy the business represents would continue. Since the ranch isn’t a business, if we sell it, we consider our legacy ended.

      Of course if there is no natural heir and you don’t want to sell the ranch, the only option left is to recruit an heir. There are programs in some states that match people who want to get into ranching with folks who are getting ready to slow down and step back. I don’t know anyone who’s done this. If anyone out there has any experience with this, please share it with us.
      Reply to this
      1. 8/29/2013 2:39 PM OogieM wrote:
        My personal concern is what happens to the livestock that I've spent my life breeding and upgrading and working with. I don't want those genetics to be lost. They need to be placed with other breeders.
        Reply to this
        1. 8/30/2013 8:17 PM Dave Pratt wrote:
          At my first Bud Williams Marketing course he said something to the effect, if an animal is too valuable to sell, it is too valuable to keep. Your genetics will be most valuable, and the work you've done most appreciated, when other producers are able to benefit from them.
          Reply to this
          1. 8/31/2013 6:07 AM OogieM wrote:
            We do sell stock, all along. But we own 5% of the entire world population of our breed and 15% of the breed in North America. If I look at the genetics of the North American population between 60-80% of the breeding animals are direct descendants of our stock only 1 or at most 2 generations removed from our farm. If all of our animals came up on the market at once many would end up at slaughter just because the market cannot absorb that many at once time. As a stopgap we've got a trust with $ and a trusted organization to handle the slow winding down over 2 years of the sell off of the breeding stock. Ideally though we'd have an "heir" that takes over the animals in place before we die so the transition is smoother. If we knew when we'd die we could do it ourselves, planning to have the animals all gone just before that but that is impossible.
            Reply to this
  • 8/28/2013 8:29 AM Jody wrote:
    we talking of selling a pretty mountain ranch and buying a more practical lower elevation , place with less winter. We currently in a Revocable Family Trust. But been talking with an accountant about moving to a FLP (which can take care of the gold digging in-law) , but my Lawyer prefers a LLC and said we can basically do the same thing.
    Reply to this
    1. 8/29/2013 9:11 AM Dave Pratt wrote:
      When it comes to vehicles like revocable trusts, FLP, LLC and all the other entities people use to protect assets, avoid taxes and see to other interests, you are talking to the wrong guy. That's when you need professional guidance.

      I used the term "gold digger" in my column as you did in your response. I recognize that a lot of marriages don't last and that having an EX with equity make the operation vulnerable. That said, our daughters-in-law and sons-in-law are not just part of our kid's family, they are our family too. Sometimes by keeping them on the out side of "family" discussions because we don't see them as "real" family, we create mis-trust and suspicion. We tend to "horriblize" them (a term from the great book, Leadership & Self Deception). We keep them out of the discussion. So they tell themselves a story as to why. Justified by the story they've told them self, they do or say something that we see or hear...and we tell our selves a story about their motives. That leads us to do or say something that they see or hear....and around and around it goes, each of us exaggerating the reality, horriblizing one another.

      There's no doubt that some daughters and sons-in-law are less than ideal life partners for our kids. However, more often we create the gold-digging daughter or son-in-law by feeling that they are, and treating them as, second-class family members.

      All of the legal and accounting tools can back-fire on us if done behind closed doors without full disclosure of our intent to everyone involved.
      Reply to this
  • 8/28/2013 9:35 AM Becky Waegell wrote:
    Keep in mind that succession is not always orderly. We did a lot of planning, but we had always assumed that the "senior" generation would die in a somewhat orderly fashion. Unfortunately, we lost my mom last December she was one of the youngest and healthiest members of the senior generation and she had a huge leadership role. Fortunatly, we did have people working with her in her key roles, but stepping up has been challenging. I can't imagine what it would have been like if we were not prepared at all.
    Reply to this
  • 8/28/2013 11:43 AM George Kahrl wrote:
    Becky's comments are wise words. Passages are not orderly, and often not in the way we would choose. Be prepared.
    Estate planning is a process which takes time, probably two or three years to work through in the end where all is in place at one point of time. Start with a few people to establish values of the plan, then go to goals, then a structure. Remember a structure is a solution to goals, and values. So often we start the other way around with a solution, then try and run it backwards to see if it will work. The values and goals are the foundation of the structure so start there. Work to keep it simple and return to simplicity. It is easy to make things complicated and that is a problem. Simple is not always easy, but it is usually more effective in the long run. Simple can be difficult so don't shy from difficult - we never did when ranching. There are a variety of tools for estate planning and now a variety of people to work with. Take time to interview a few before deciding on one person. Though it may seem expensive to spend $500 in interviews for billable time, remember estate planning will have million dollar decisions on the table. Get the right people at the table. An estate planner is as much a facilitator as a planner. The planning professional needs to return the discussions to values and goals, not just come up with creative ideas or solutions. S/he needs to be able to work a variety of people and ideas and simplify them into a structured plan. I have come to learn "...its not about the best idea, or even a very good idea, it's about how the idea is presented, received, and who becomes enrolled...." Lots of great ideas are blown away because of personalities and positions which have nothing to do with the actual idea. When planning, set time lines for development. Lots of time can be consumed in talking "about the situation", which is valuable to a point, but then move forward with what you can, might, and will do.
    Think about estate planning as a legacy. Think about planning for ways to create opportunities in the future, which is different than focusing on land, livestock, and finances. Remember it is income from underlying asset, not the dollars in the asset itself which supported the family.
    Postponing estate planning is like leaving a crop too long in the field. We've all stayed up late to ensure our heifers calve well, or our grain comes in on time. We have given those things our time and attention with the belief time and attention make things better. An estate planner is expensive, but not as expensive as a good tractor. Hiring good help is valuable when considering the allocation and management of hundreds of thousands of dollars of assets and potential tax liabilities. It can be a creative process of planning and giving and providing for others.
    Reply to this

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