The 10 Most Common Mistakes Farm Families Make During Transitions
What are the biggest mistakes farmers make when transitioning their businesses to the next generation?
Curt Ferguson spent 30 years in estate law, working with farming families to plan their estates and grow their businesses. And as the insurance ad says, he knows a thing or two because he’s seen a thing or two. Here’s a look at the top 10 mistakes he saw in farmers when transitioning their business.
Related: Roadmap for a Transition
1. I am immortal. The farmer who thinks he can choose his retirement date and his death date will have a hard time on the second date. “If you care about what happens when someone else is running the farm, you need to start working on the transition long before you die or retire,” says Ferguson. “Don’t put it off. “
2. Taxes are my only problem. Gift taxes, inheritance taxes, and the monstrous deferred income tax aren’t your biggest transition challenges, if you follow the right advice. Family, control, management and relationship issues are the most difficult. “People want to say, ‘Just help me avoid taxes and probates.’ The rest will take care of itself. No, it won’t, ”he said. Relationships and abilities are too important.
3. The land is my only asset. It’s not. Ferguson says farmers actually have three assets to pass on, and they need to do it in the right order: 1. Opportunity 2. Control 3. Capital.
4. I will decide anyway. Give opportunities with gradually increasing control, he says, and don’t give people managing authority they are not prepared or capable of. “Preparing successors means giving them enough responsibility now, while you are still there, so that you can mentor them,” he adds.
5. I have plenty of time. For most farming families, the transfer of capital (especially land) will take place on death as part of the estate plan. Steps in this direction should be planned well in advance, and the larger the farm, the longer it takes.
6. Everyone knows what I want. Do you want your successor to think like you? Think out loud. “Your successor can’t read your mind unless you expose it to him,” Ferguson says. “For those who care about the future of the farm, the wisdom and values of the older generation are a vital foundation. “
7. No one can improve my work. Core values are timeless, but no business can stay the same and thrive in the future. No one, even you as the founder, knows everything. “Expect the next generation to make things better,” Ferguson adds. “Encourage the next generation as they bring innovation back to your business. “
8. Someday this will all be yours. “If your 55-year-old successor doesn’t make a lot of big decisions by then, you might be the reason your farm isn’t thriving in the future,” he says.
9. Everyone is like me. Don’t force a descendant to do something they don’t have a passion for. And don’t force people to work together in ways they don’t want or are unsuitable for. Some children will want to pursue other careers. “The right plan will always benefit indirectly in one way or another, while protecting the active successors,” says Ferguson.
10. I will offer and everything will be fine. Transferring capital, by donation during your lifetime or via your inheritance on death, is an opportunity to protect it from disasters and future inheritance taxes. Don’t just pass the assets on to the next generation, says Ferguson. Instead, transfer the assets to beneficiary-controlled asset protection trusts, which will protect the assets from lawsuits and failed marriages. And, in Illinois, the assets of these trusts, as well as their appreciation, can forever remain free from future gift and estate taxes.