In this world nothing can be said to be certain, except death and taxes. —Benjamin Franklin
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.”