It can be hard to know where to start, when thinking about transferring the family farm business to the next generation. The sheer number of details can be overwhelming. How on earth should we go about it? Do we use a will or a trust? Should we transfer it now or later? Do we need to form a corporation? And what happens if, for example, our farm heir ends up getting divorced?
The best way to ensure a smooth transition is not to focus on the ‘how’ first, but rather, on the ‘what.’ Once the ‘what’ has been determined, that will decide the ‘how’ for you.
Determining the ‘what’ is basically a matter of goal-setting. But just like anything else in a family business, it’s not quite as simple as it sounds. Every individual involved has their own ideas and plans, so taking the time to work out a common path forward is vital. You’ll need to consider what you want from and for your farm business, what you want for your family and for yourselves…and don’t forget to think about what you’ll want in your retirement!
Following these three steps can make the process much more straightforward, and much less intimidating:
1. Each individual should write down their own goals. Everyone – from the retiring parents to the new generation to the in-laws – should make a list of their own individual goals for the farm business, their family, and themselves. They should first determine their long-term goals, such as owning 1000 acres of land (individual goal), saving enough to pay for the kids’ college education (family goal), and maintaining the farm base and expanding when possible (farm business goal). Then, they should come up with short-term goals that support those long-term plans. For example, gradually paying down debt (individual goal), setting aside $10,000 per year towards college tuition (family goal), and buying one new piece of farm machinery every year (farm business goal).
2. Each couple should come together to blend their individual lists of goals. The exiting parents, the couple taking over, and again, even the in-laws, should now get together as a twosome to share their lists. Long and short-term goals should be prioritized and meshed together to create a new list that represents the combined goals of each husband and wife team.
3. Everyone should get together to create one final master list of goals. This will take diplomacy and cooperation, of course, but settling matters upfront together will prevent everyone from having to deal with misunderstandings and conflicting goals down the road. Prioritize which goals are most important for your business success and your family well-being.
Once you have come up with your family’s list of goals, you can take it to your transfer and estate planning team, and they will be able to explain the ‘how’ to you: which transfer options will help you achieve those goals. Of course, circumstances and priorities can change, so these lists are not set in stone, but having a basic road map to guide you will be invaluable, regardless of any tweaking that needs to be done down the road. And the open lines of communication between generations that will result from this exercise are also priceless in ensuring a smooth transfer that satisfies all parties involved.