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Family Business Matters 06/18 04:59
Your Pre-Succession Checklist
Succession is often narrowly framed as the movement of assets to the next
generation. While such planning is important, there are nonfinancial issues,
also, to consider.
Lance Woodbury
DTN Farm Business Adviser
Succession is often narrowly framed as the movement of assets like land and
equipment to the next generation. Advisers focus on gifting and or selling
equipment to the next generation while avoiding tax consequences, or they limit
discussion to the liquidity needed to buy out off-farm siblings. They propose
different kinds of trusts, gifting plans, insurance policies and entity
structures to minimize taxes and protect assets.
While such planning is important, there is more to it than just the movement
of assets. Discussing the following nonfinancial issues can grease the wheels
of a successful ownership transition.
A VISION FOR YOUR LIFE'S NEXT CHAPTER
One factor in a successful transition is the senior generation's focus on
its future. Specifically, what happens after you step into a less-prominent
farm role? Will you be on the farm or ranch working in an employee capacity to
support the younger generation's leadership? Do you have emotionally fulfilling
activities away from the farm? Will you live on the farm or in town, and how
will you spend your days? Without a vision for what's next, the senior
generation risks feeling lost and depressed during and after the transition.
YOUR ABILITY TO LET GO
Closely related to a vision for your future is your psychological ability to
let go of daily tasks. If your vocational identity -- what you do -- is tied up
in the daily accomplishment of farm or ranch activities, and you must still
instruct, guide or manage daily to feel a sense of accomplishment, it will be
difficult for the next generation to be excited about taking over. Most leaders
want to feel a sense of autonomy, that they have control over their work.
Frustration ensues when the senior generation is not ready to let go and jumps
in the middle of the daily to-do list, yet still talks about the importance of
succession planning.
AGREEMENT WITH YOUR SPOUSE
An often undiscussed issue is whether Mom and Dad agree on aspects of the
handoff. Succession-planning efforts can stall because the parents are not in
agreement about the principles of the financial and management transition.
Maybe one parent is still highly involved in the business, and the other parent
is ready to retire. Or, there is a lack of agreement about the timing or
amounts of financial gifts. When parents don't agree on the basic tenants of a
succession plan, it stymies the advisers and stalls the whole transition effort.
THE NEXT GENERATION'S SKILLS
It is hard to admit that your kids do not yet have the skills to manage the
business and even harder to acknowledge that your kids may not be the best
leaders for the future. If they do have the ability but are not yet ready, work
with them to develop a plan to gain knowledge and experience. If a non-family
leader is needed, or if you need to brainstorm alternatives to family
ownership, start those discussions early, as implementation often takes several
years.
THE NEXT GENERATION'S RELATIONSHIPS
If the next generation does not work well together, you may be setting the
stage for future legal battles by trying to keep the assets tied together,
which minimizing taxes often requires. Engage in honest dialogue about how your
adult children will own and manage assets together. Through careful planning,
you can develop strategies that don't tie the financial fates of your heirs
together. But, it requires admitting and planning around the lack of working
relationships, which is often difficult for parents to acknowledge.
Planning for the legal and tax aspects of a transition is important, but
there are other issues that can help -- or harm -- your succession and estate
plan. Considering them will help set the stage for your successful planning
process.
Lance Woodbury can be reached at lance.woodbury@pinionglobal.com
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