Where do I start? Transition and estate planning
What if? Two very simple words, but when put together they lead to a series of complex questions. What if an incident happens on the dairy resulting in the death of the principal owner? Would the legal paperwork and expenses result in a positive outcome for the dairy? What if the owner decided to retire from farming? Is there a plan in place to transfer the farm to the next generation or business partner? If there is a desire to continue the business in either one of these scenarios, planning ahead is vital.
Everyone has a number of reasons for not planning. Thoughts of the planning process being too complicated, not knowing where to start, and answering the future ‘what if’ questions all hinder planning progression. Establishing and implementing a transition and/or estate plan will ensure that your business will continue for many years to come. By providing open communication to all involved individuals, assessing finances, establishing goals and creating a network for knowledgeable professionals, you will be well on your way to planning for the future.
One important key factor to keep in mind is that dairy farms are businesses. Speaking from experience, that simple statement can be difficult to follow due to the emotions involved with family owned businesses. Many family owned businesses, especially those with livestock, walk a fine line between making decisions based on family emotions versus business sense. “Well, that cow has been my daughter’s pet since she was born, she will never leave the farm.” In reality, from a business perspective, if that cow is causing problems that are driving down the profitability of your herd, it is time to cut your losses and replace it with a younger problem-free cow. It is important to make business decisions to improve the profitability of your dairy. A business is a business; behaving like a family is only appropriate at family gatherings.
So, where do I start? The following are four things to consider when starting your transition and estate planning:
Communication – Communication is key to planning. Creating an open atmosphere of communication is essential to make sure that everyone involved is getting their opinions heard. Note: It is important to make sure that all individuals involved in the decisions are included in the discussion. Most transition and estate planning scenarios involve several generations that will vary in personalities and future goals for the business. Many of these discussions will result in differences of opinion. Finding common ground is important to help move the planning process along.
Financial Records – Assessing finances is important in any discussion made on the dairy. Long-range financial budget analysis is helpful in planning. When assessing the business financials, several questions come to mind such as: Are there enough funds available to support both generations or business partners to transition the farm? Is the estate being allocated fairly to both the farming and non-farming heirs? Many of these types of questions will need to be answered to plan the future of your business.
Goal Setting – Goal setting helps to envision the future of the business. An exercise that may be helpful during your planning process is to have all the individuals that are invested in the business create their own goals for the future separately. Then combine and prioritize everyone’s goals into a farm business goal used to aid the future of the business and provide a guideline for the transition and estate planning.
Network – There are a variety of advisors available who work with transition and estate planning on a daily basis. Utilize the expertise of these professional advisors, such as your accountant, banker or farm management instructor, to guide and to provide suggestions on how to effectively create a transition and estate plan. After you have a good idea of how you would like to proceed with your transition and/or estate plan, contact an attorney.
If you consider these four steps to transition and estate planning, you will be well on your way to securing the future of your business. Note: You don’t need to be an expert on the ins and outs of transition and estate planning to have an effective plan in place. By utilizing professional advisors, you can create a plan that can be implemented for many years to come.
For more information, please visit the University of Minnesota’s Agriculture Business Management website to view the two 12-part series on transitioning the farm business to the next generation and personal estate planning.