What will your farm look like one year after you’re gone? Do you have a plan? In December 2019 Stockman Grass Farmer went out on a limb and hosted the first in-depth school on succession that from now on we’ll call a reboot because it sounds hopeful rather than depressing. Everything’s in a name, right?
Rebooting our farms is more important than our grazing plan, cash flow plan or marketing plan. It eclipses everything, and yet almost no farm has a plan that addresses this issue. According to all farm demographics right now, in the next 15 years half of all agricultural equity will change hands: land, buildings, machinery. Here at SGF, we know that our core patron base may average lower in age than the average 60-year-old American farmer, but it’s not 35, which is the target average age of economic sectors in their height of performance.
My dream is to enable SGF readers to be the most prepared for a seamless transition to the next generation so that the grass farms Allan and staff cultivated all those years do not get put to the plow or monocrops or other uses ecologically inferior to grass farming. I don’t want all this beautiful grassland lost in the upheaval of transition. I want our farms to thrive and expand during this generational transfer.
We plan to host another Succession School, probably in 2021, but between now and then we’ll be dealing with issues in this space to not only feed conversations around your dinner table, but also to show that we’re serious about helping farmers through this difficult time of life. Here are some take aways from the first school.
2. The most significant impediment is not mechanical or legal; it’s emotional and relational. Todd MacFarlane calls this the “want to” attitude. Lots of options exist, from a discounted sale to gifts with buybacks to simple transfer. The actual framework for transferring assets is varied and fairly doable. What’s difficult is dealing with the baggage at the table. Here are a few of those:
None of the children wants to work the farm.
Grandchildren are not yet old enough to assume control - generation gap.
One child wants the farm and others want money (“why should I give up $500,000 for you to come and earn $30,000 a year?”)
One child is a snake (greedy, arrogant, untrustworthy, etc.)
No children exist.
The farm doesn’t produce a salary.
Children are in careers away from the farm, but don’t want it to get away; they entertain notions of “coming back someday.”
“Dad won’t let me make any decisions.”
“Junior doesn’t have a clue how to handle money and make decisions.”
These and a thousand other permutations impede not only the reboot discussion, but the reboot potential. None of this is mechanical; it’s all emotional and relational. In other words, procedure is easy if psychology is good.
3. Land is zero value unless it’s sold. As land values appreciate, it skews the thinking among family members regarding value and wealth. Although the tax value of assets (land, buildings, machinery) may be $3 million, that value can only be realized if it’s sold.
Owning land, buildings, and machinery is completely different than owning stocks and bonds. Those yield dividends automatically. If you don’t do anything but watch TV and eat chocolate bon-bons, you get a check in the mail. Not so with farm properties. Even if you do nothing, you need to pay the taxes on it. And if you don’t want the buildings to fall down, you need to maintain them. You can certainly liquidate the equipment to stop that ongoing expense, but if you own the land and buildings, they require ongoing expense even if you sit on your hands.
You don’t get interest on land equity. You only realize a gain when it’s sold. This is an extremely difficult concept to understand for the siblings who don’t want the farm. They don’t want one sibling to get the land because they perceive that as unfair - look at the value. But most farms don’t generate enough cash flow to buy out the market value from non-inheriting siblings; this reality pushes most parents to give it in equal but undivided interest to the next generation. That is the worst plan imaginable. It generally creates feuds and fusses that finally end in liquidation.
A plan can, however, reach beyond the grave with a shared-sale option. If the child receiving the land ever sells, the siblings get to share in that value; that protects them from the “farming child” quitting and running off with the money. Even if all the current siblings can agree on a structure that allows undivided interests to exist in harmony, what happens in the next generation when three owners become nine? And then the next generation where nine owners become thirty?
4. Frameworks exist to facilitate open, respectful, non-explosive conversations. Dan James explained their family meeting and consensus structure on the shared-ownership James Ranch in Durango, Colorado. Using a Delegated Meeting Process (DMP) ensures everyone a spot at the table. Official titles include the moderator (makes sure an agenda is in place), the pacer (manages time and rhythm), the scribe (keeps minutes), the decision driver (encourages solutions), the coach (feedback at end of meeting), the goalkeeper (keeps things headed toward the target) and the host (brings snacks, prepares and picks the meeting spot).
All of these titles create a framework of mutual submission, which is one of the hardest aspects in a reboot family discussion. Most people come to the table with an “I want mine” spirit; by designating formal officiating titles, it puts everyone in a servant oriented mentality. Anyone who has been in family blow-up discussions can appreciate the profound implications of this structure.
This structure is all about coming to consensus by teasing out expectations and facilitating decisions. The easiest thing for people to do in these reboot discussions is to complain about “my fair share” or the perceived unfairness of somebody else’s portion. But whiners do not move forward. They’re stuck in victimhood. “Okay, if you want the farm to stay intact but you want $500,000 when Mom dies (usually the wife outlives the husband) then what would you do?” And after you ask the question, shut up. Wait. Stop the attack. Let the whiner wrestle with something positive for a change. This actually moves the conversation to a better place.
5. Whatever you do, start it yesterday. Throughout the school, what became a painful refrain was that all of us are generally later coming to this reboot discussion than we should be. Not only do these discussions take time, but often once we have a game plan, it takes time to execute. For example, if you’re going to use a gifting procedure, you need to start it with 20 years of life on the table in order for it to meaningfully chip into estate value.
If you’re in the generation gap problem, where Mom and Dad are in their 70s and the children are away but perhaps a grandchild will take the reins and nobody wants to see a liquidation until it’s clear no grandchild wants the farm, it takes time to find an interim operator who can hold things together until the grandchildren are old enough to express career paths. The older Mom and Dad are, the less energy they have to mentor a young partner. A waning farm is less desirable for a young partner.
Goodness, it takes time for the snake sibling to finally frustrate the process enough for the rest of the family to say “go take a hike; we’re moving forward without you because you’re just too difficult.” That bottom line takes time to develop. It takes time to realize that a piece needs to be sold in order to satisfy everyone. Or perhaps selling outright is the best thing and everybody wants to start over somewhere else - switch from arid west Texas, for example, to more temperate Missouri. These are huge and long-ranging discussions; hey take time.
We are actively seeking articles on this topic. Reboots done well and reboots done poorly. What worked? What didn’t? We solicit your stories to build a body of experience, principles and encouragement to turn a dreaded transition into an anticipated reboot. Wouldn’t it be cool if all of us could go to bed tonight knowing that if we didn’t wake up, the land we’ve loved, nurtured, and held together is in good hands? That the soil will continue to grow, that the water will continue to flow, and that families will continue to show a stewardship ethic? Let’s get on with it. ■