In this world nothing can be said to be certain, except death and taxes. —Benjamin Franklin
Shock ripped through him as the doctor continued to explain his condition. Barely catching fragments of words like “tests” and “open heart surgery,” his mind raced. “Am I going to live?” “Can I beat this?” “God, why?”
That evening as he and his wife returned home to their ranch, they stopped at the gate entrance. Looking out across the hills in silence, thoughts cycled through determination to fight and worry about the future of his family. He squeezed her hand and they began to drive through the cattle-spotted legacy they devoted their lives to building together. The best and worst days of his life were on this ground — where he taught his children to love the Lord, the land and how to make an honest living, just like his father had taught him.
Closing his eyes, he began to wonder, “Is my family ready to carry on without me?”
Throughout this series, we’ve diligently exposed the delicate matters surrounding the development and implementation of succession plans. They are difficult topics for families to face, exposing individual vulnerabilities to their very core in the realization, expectantly or unexpectedly, everyone’s life comes to an end. And as terrifying or peaceful as that fact of life may be, these topics must be faced head-on if a family operation is going to survive for the next generation.
“The motivations for family operations to actually start putting together and implementing a succession plan are very different,” explains Dave Specht, founder of Advising Generations, LLC, and author of the new book, The Farm Whisperer — Secrets to Preserving and Perpetuating Farms.
Specht says sometimes the conversations are spurred with business stakeholders thinking, “I want to be intentional and make it so my family doesn’t have to react in a time of crisis.” They nurture and grow a management plan over a long period of time.
However, most often it is a health scare that drives key family-business members to be proactive.
“There was a ranch family in Nebraska that I worked with years ago,” Specht recalls. “The controlling owner was the second generation and started having serious heart issues, to the point where he started looking at things as if he was going to die. I was brought in to facilitate conversations about the transitioning process between him and his grown children, and it soon became clear that this had been something the younger generation had been wanting for a long time — but it took a heart issue for that to come into process.”
Whether it be dealing with a health crisis or even death, processing devastating news about a loved one is emotionally taxing — sometimes impacting individuals’ abilities to make sound, rational decisions. And when a business-management plan is forced to be put together in a short amount of time, it also puts the family at a high risk of losing flexibility and control.
“Aside from the stress and anxiety family members are faced with while dealing with the personal emotions of a crisis, if anyone you’re working with on a professional level knows that you’re having health issues, it also affects your relationship with them,” Specht adds.
A major relationship at stake is with financial professionals. If there are known health issues and a lender is not comfortable with the incoming generation, he may not extend the same credit and terms, Specht warns.
Another big factor is the timeliness of the multiple professionals it takes to collaborate for a plan to come into action. For example, in an extreme case where a business decision-maker only has weeks to live because of a sudden health issue but the estate attorney needs upward of three months to get everything in order, it will add to the stress level of everyone involved.
“Planning early allows for time and perspective to customize and adjust the plan to fit the operation and the skills of the family members [who] will be called upon to manage and own it,” he continues. “Waiting to plan minimizes options, increases frustration and decreases the likelihood for successful continuity of the operation.”
Take a minute and look at succession planning in the same shoes as a cow-calf producer would look at his/her cow herd. If there is a cow that is constantly running people up the fence, tearing through fences and getting the rest of the herd stirred up, chances are she will earn herself a trip to the local auction house.
“If anyone in a family business resists taking the necessary steps to form a succession plan, they are putting their family operation in the cull pen to be hauled off to the sale barn,” Specht explains. “By not being prepared, an operation is at a much higher risk for receiving devastating consequences.”
State and federal taxes are a huge component in the generational transition process. If adequate time is given, producers are able to be more creative with accountants in setting up a system that lessens the tax burden — which, in itself, could force remaining family members to sell.
The second, and perhaps biggest consequence of not having a plan in place, is the risk of breaking family relationships.
Specht recalls a family he worked with in California that was torn apart after secretive business decisions. The dad — owner of the business — employed his son and daughter as the day-to-day operators, and his wife as the bookkeeper. He had a will put together, only sharing it with his attorney. Unfortunately, the dad passed away from a sudden heart attack.
“As it turned out, the mom and daughter each inherited half of the business, and the son received nothing,” Specht says. “And the reasons were unclear as to why. Maybe he intended the mom to pass her half down to him when she retired, or maybe it was for a financial decision — but not knowing was very hard on the son.”
Eventually, the son, filled with hurt and frustration, walked away from his family’s business, taking his clients and building a competing business just down the road. Along with that, the personal relationships were divided, and there are now grandchildren living in the same town as their grandmother, with no contact, and a son who no longer speaks to his family.
What’s your motivation?
Take some time and ask yourself the all-important question, “Why?”
Maybe it’s just for tax reasons, or maybe it’s to create family harmony with a meaningful estate plan. The process of creating and implementing a generational transition plan is not easy, but the rewards of doing it right far outweigh the potential consequences of not having the uncomfortable conversations.
“It was a very tender first meeting for the ranching family from Nebraska that I mentioned earlier. The dad opened up, and for the first time shared how he felt about the ranch and his family. His eyes filled with tears as he told them that they were by far the first priority,” Specht concludes.
“The younger generation had long been filled with frustration because of the dad’s hesitancy to form a transition plan, but seeing him bare his soul to them and how much he actually cared allowed them all to have more understanding. His willingness to be vulnerable galvanized the relationships in the family and unleashed the next generation’s commitment to going forward in way that I don’t think could have happened otherwise.”