What have two banking experts learned through decades of helping farm families transition their businesses?
“You can’t start soon enough,” was one piece of advice Brad Guse offered during a panel discussion held during the Federal Reserve Bank of Chicago’s Midwest Agriculture Conference. Guse, a senior vice president with BMO Harris Bank, described that a big hinderance to successful transitions is having only a “death plan” instead of an estate plan.
Said Guse of the reactive versus proactive approach, “If you have a death plan, you don’t really have a plan.”
Waiting until a transition conversation must happen, such as in the case of a farm owner’s death, creates challenges and rushes the process. Businesses change over time, and when farms may consist of multiple entities or family members, having no plan makes an emotional process even more complex and puts the farm at greater risk of collapsing in part or in total.
Having a plan for your farm and estate as you age can avoid these problems. Business transition planning is not always simple; small businesses on Main Street face transition problems, too, said Guse. But farms are under special consideration because of the assets they need to transfer.
Specifically, he noted that non-farm investments will need to be balanced in the plan appropriately. Also, gifting has be to a well-thought-out part of the plan. If the next generation is going to be successful, the older generation cannot have their entire retirement tied up in the land assets, Guse said.
Talk about it
Of course, none of this should be done without open communication. Even if the parents know about the plan, but it is not shared with both farming and non-farming heirs, the older generation’s death can leave a family and the business torn apart, said Paul Dietman. “My experience is communication is most key,” shared Compeer Financial’s senior focused lending specialist.
It's hard to make a transition plan fair and equal. The best way for both small and large farms to reach an agreement is to talk about it, added Guse. Even if it’s just a brief check-in, have these conversations often as the business changes.
Dietman recommended that a neutral third-party be part of the larger transition conversation. “With families, everyone’s got a vested interest no matter how much they try to be neutral,” he said. Having someone else at the table can point out those moments and help the family find their best option for equality. A third party also facilitates the conversation in a way that a family that works together every day might not talk about, he added.
A farm business can seem like a daunting thing to try to divvy up and prepare for the future, especially when multiple heirs are involved. But with conversations and time, the assets and the family can stay healthy. “It’s the communications issues that sink the plan; it isn’t the financial issues,” Dietman summarized.