Your Step-by-Step Guide to Ag Succession Discussions

Transitioning a farm to the next generation has a lot to do with managing relationships, maybe more so than managing the assets. It’s a long process, not an event (think of it as a long-distance run, not a sprint) that requires balancing the needs of the retiring generation, the successor and any non-farming heirs.

Here is a step-by-step guide to navigating these discussions.

Phase I - The Prep Work:

Before bringing everyone to the table, the current and retiring owner(s) need to get their thoughts in order.

1. Define Your Personal Goals: When do you want to retire? What will your cost of living be? How much involvement do you want to keep in the operation?

2. Assess Financial Viability: Can the farm support two families during the transition? We recommend reviewing your balance sheets and cash flow to see if the current operation can support a split or an expansion.

3. Identify Potential Successors: Determine and be honest about who has the skill, interest and “skin in the game” to take over.

Phase II - The Initial Family Meeting:

Coordinate a 2-3 hour family meeting at a time when you won’t be rushed. If necessary, consider having this meeting with one trusted adult child to start. This meeting should be high-level and only about vision.

1. Set Ground Rules: Make sure everyone knows they will be heard, no one will be interrupted and the goal of this entire process is the long-term health of the family and the farm.

2. Share the Why: Ask each family member what they want for the future of the land. This may be where you learn if non-farming siblings expect a buyout, or if a successor feels ready for more responsibility.

3. Address Fair vs Equal: This will be the hardest part of the entire succession process. Discuss early on that fair does not always mean equal. Keeping the farm viable for the operator may not allow for splitting everything equally amongst heirs.

Phase III - Technical Planning & Professional Input

Once your family is aligned on the general direction, bring in the experts to build the “how”.

1. Assemble Your Team: You will need an ag accountant or financial advisor, and an estate planning attorney.

2. Choose a Business Structure: Evaluate if you should move from a sole proprietorship to an LLC, S-Corp, Trust or other.

3. Draft an Agreement: Create a legal agreement for the farm including what happens if a partner dies, divorces, or wants to leave the arrangement?

Phase IV - The Gradual Handover

Succession is most successful when it happens in stages. You might consider starting with the labor, then management, then finally, ownership.

1. Test the Successor: Give the incoming generation full control over a specific segment of the operation (as an example, a specific herd or the haying business). See how they handle the financial decisions.

2. Create a Sunset Schedule: Draft a timeline for when the retiring generation will step back from daily decisions.

3. Schedule Regular Check-ins: Schedule quarterly “State of the Farm” meetings to review financials and adjust anything within the plan as needed.

As you navigate this process, don’t hesitate to take notes of each meeting. Documenting the minutes like you would for a work meeting may seem formal for family, however, it can eliminate a “he-said, she-said” situation and prove to be a helpful resource for all involved.

The estate planning attorneys of Blethen Berens have helped thousands of family farms with their succession plan and would be happy to help your family transition, too. Contact us at any stage by calling 507.345.1166.