Northern Idaho farmer Steve Riggers says succession planning should start early, and important questions should be addressed on a regular basis.
If you want to retire in your 60s and ensure the ranch or farm stays in the family, what do you need to do to accomplish that? What happens if you get to age 70 and don’t have enough equity in the farm to make it work as far as passing it to the next generation?
For Steve, who began working full time on his family’s farm during the 1980s farm crisis, that discipline became a key part of his retirement planning from the start.
“The biggest thing was gaining an understanding that the farming business is highly variable. When you have good years in farming, you better put money away and build equity in the farm instead of building nice houses, buying RVs and boats and going on trips,” Steve says.
Another important part of succession planning, says Steve, is striving to maintain good relationships with business partners, and surrounding yourself with the best team of professionals you can.
“My brother, Nate, and I have had a very good run together. We worked hard at working well together, and when we did run into a situation there was always some give and take, especially when someone was very adamant about a decision.”
The two brothers also sought out a highly respected law firm in nearby Washington state with experience helping farm and ranch operations run successful businesses and develop equally successful estate plans.
The family also teamed with an accounting business that worked closely with the law firm.
“We have been working with them for many years, and they know our operations well,” Steve says. “The farming and ranching business can be very hard, very stressful, and those are among the reasons you want to find the best help you can — whether it’s employees, a contract agronomist or an attorney-accountant team versed in agriculture.” That team-building style has value.
Embrace the team approach
When it comes to farm and ranch succession planning, start early, communicate often and embrace the team approach.
Those are among the words of wisdom of Laramie, Wyo., attorney Don Prehoda, who has helped many agricultural producers in Wyoming and Colorado with estate planning since the 1970s.
“Instead of waiting until your 60s, 70s and 80s, the real key is to start thinking about it early, and start asking questions,” Prehoda says.
These are the questions he says are important:
• How is all of this going to work over time?
• Can we divide up the ranch or farm? (leaving so many acres to one child and so many to another)
• Can a non-resident child receive some acreage? (and, in turn, either rent or sell that acreage to a resident child in order to capture a piece of the inheritance)
Prehoda says that family ranches and farms have a much better chance at succeeding into the future if this kind of planning starts early.
“The statistics are that less than 50% of ranches survive the first generation after death of the parents — and only 10% survive the second generation, because you fracture the ownership even further,” he notes. “You go from three children to 10 grandchildren, and suddenly there are potentially a lot of competing interests.”
Open communication is vital, Prehoda says.
Most days farmers and ranchers are running an operation, working with animals and raising crops —not spending time thinking about succession planning. “And they don’t spend much time visiting with their kids about this issue,” Prehoda says.
He emphasizes that talking things through enhances understanding about why decisions are made the way they are. This can avoid trouble later, and a team approach can help accomplish key succession planning goals.
“The team not only includes family members, but also an accountant and an attorney versed in agricultural businesses, and possibly a life insurance representative and an investment adviser,” he says. “Working as a team makes it much easier to come up with viable solutions and, ultimately, a sound plan.”
Take care choosing team, though
Prehoda encourages ranchers and farmers to choose a team of experts carefully.
“Be wary of those who are trying to take your estate plan and design it for their own benefit. The life insurance agent wants to see more life insurance bought. The lawyer wants to see a very complex trust. The accountant wants to see more devices created that will lead to more tax forms to file,” he says.
In seeking out professional help, Prehoda says word of mouth is a great starting point: “Good lawyers and accountants don’t have to pound the pavement with advertising because their work is built on a solid reputation.”
Another good source to find an attorney versed in estate planning is the American College of Trust and Estate Counsel.
The ACTEC website, actec.org, lists about 2,500 attorneys across the country who received membership based on peer reviews, and it also includes resources for families.
“Members have to be in primary practice at least 10 years in the field of estate planning, and they are significantly vetted,” Prehoda says.