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Transition: Generational Mistakes

How will the 2022 tax law changes impact your operation?

David Kohl, Contributing Writer, Corn+Soybean Digest

August 9, 2021

3 Min Read
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Wow! The potential for tax law changes in 2022 has kick started business transition into high gear. Stories of the older generation placing land up for sale, which was unheard of in the last decade, is becoming a new megatrend in some areas of the country. The local convenience store in my town where many stories are swapped (and many lies are told) is being sold, along with six other stores, in a transaction that seemed to happen overnight. This sale occurred to avoid the “tax man” with changes in the estate tax laws. With this as a backdrop, what are some of the generational mistakes often made by both generations in estate and transition planning? Let's start with the junior generation.

Sometimes the younger generation is impatient and attempts to build a legacy and grow the business too fast.

It can take generations to build a showplace and sometimes a showplace may not be profitable. In some cases, unexpected capital expenditures must be made right out of the gate which can deplete working capital. Another mistake made is not having clearly defined roles, responsibilities and, of course, accountability.

Finally, transition into a full operation can occur too quickly. If this happens, the current generation may not allow the younger generation to gain the necessary management skills. Leasing part of the farm or having specific enterprises to manage or own is analogous to an internship that can be valuable in learning the tricks of the trade.

Related:Farm Business on the Brink

Now that we have picked on the junior generation, let’s transition to the senior sector. One of the biggest mistakes is the secrecy regarding the financials. In many cases, the younger generation is not allowed to know or manage the finances early enough.

One mistake often observed is not allowing the “intern” to graduate and take over the reins. The six-year rule often applies. If the younger generation is not making decisions within six years, they often become a hired employee for life. The next mistake is waiting too long to build the management skill set or developing the skill set of the past rather than the skills needed for the future. Occasionally, the junior generation must fail in order to know how to succeed.

In the context of business transition, the senior generation must realize that all family members cannot be treated equally when it comes to finances. If the younger generation successfully grows the earned net worth or earned equity of the business, they must be rewarded for their efforts. It is not sweat equity, but management equity that is important in the profit equation. Remember, the farm comes with both risk and opportunity.

Related:Farm business planning: Tool for the times

Cash and life insurance proceeds come with no risk and can be quickly converted to alternatives and options for the nonfarm family members. Finally, if one inherits over $100,000 of liquidity, history shows that over three quarters of people will have nothing to show for it within two years. Easy come, easy go!

Source: Dr. David Kohlwhich is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 

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About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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