Ten Things to Consider for Succession Planning

Introduction

Business succession planning doesn’t happen on its own. Producers must intentionally focus on the planning and work with a team of professionals such as a tax specialist, attorney, financial planner, and lender.

Family businesses, particularly family farms, often face the challenge of balancing family values with business goals. Families are generally focused on emotions and stability, while businesses thrive on performance and adaptability. This inherent conflict requires careful consideration to ensure a smooth transition between generations.

Farmers can make their time with professionals more productive by preparing beforehand. Here are ten key steps to consider when preparing for succession planning. A facilitator can help keep everyone on track and accountable when working through these steps.

1. Organize Your Information

  • What does each generation own and owe?
  • How do they own it?
  • Gather all depreciation schedules, insurance policies, retirement plans, savings, and other assets.

2. Develop and Discuss Intentions/Priorities

  • Is it important for the business to continue?
  • Does the successor generation want to provide a dignified retirement for the owner generation?
  • Does the owner generation value keeping the land in the family name?
  • Do the successors’ priorities match with the owners’ priorities?

3. Evaluate Your Communication Skills/Patterns

  • Are you a good listener?
  • Has the owner generation had a conversation with family about succession?
  • Has unresolved conflict been named and addressed?
  • Is there communication among partners?

4. Analyze the Farm Business Financials

  • Does everyone know the liquidity and solvency position of the farm?
  • Has it been profitable?
  • What are the cash flows?
  • Can the farm support additional families, retirement assets, or inheritance assets?

5. Estimate Family Living Needs

  • What are the current needs?
  • What are the future income sources and expense estimates?
  • How much is needed from business assets for family living costs?

6. Develop a Management Transition Plan

  • Is the owner generation ready to relinquish some decisions and responsibilities?
  • Is the successor generation prepared to take on those responsibilities?
  • Has there been a specific conversation about transitioning management?
  • Is the owner generation emotionally prepared to let go?

7. Create a Timeline

While timelines can’t be set in stone, they provide a framework and target dates for transferring short-term, intermediate, and long-term assets.

  • Include management transfer milestones.
  • Put these plans in writing.

8. Develop and Discuss Estate Plans

  • Do both generations have wills or estate plans?
  • Have guardians been nominated for minor children?
  • Does everyone have Power of Attorney for Finance and Power of Attorney for Health Care in place?

9. Consider Fair vs. Equal Inheritance

  • Has the successor contributed to the owner’s business with a plan to compensate them with farm assets at a later date?
  • Is this plan documented?
  • Does continuing the farm take precedence over an equal distribution of assets?

10. Evaluate Long-Term Care Needs and Options

  • Has the owner generation researched long-term care options?
  • Does everyone understand Medicaid eligibility and recovery rules?
  • Can a plan to age in place be developed?

Additional Resources:

  1. “Cultivating Your Farm’s Future” workbook and companion guide. This workbook contains invaluable tools to help with your farm’s succession planning.
  2. “Cultivating Continuity“ the companion guide to Cultivating Your Farm’s Future features additional resources.

Authors

Joy Kirkpatrick

Joy Kirkpatrick is an educator at the University of Wisconsin- Madison Division of Extension. She received both a BS and MS degree from Southern Illinois University-Carbondale. Joy has extensive experience in farm succession planning.

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