It is a life-changing experience when children receive a family farm or ranch from their parents. For many families, their farm or ranch is not only their largest financial asset, it represents the collective blood, sweat and tears of generations of family members.

Over the next decade, children whose Baby Boomer parents are still farming and ranching will be grappling with succession planning decisions. An estimated $8.8 trillion in wealth – including family farms and ranches – will be passed down from Boomers to Gen X and Millennials by 2027, according to a report from the Chronicle of Philanthropy.

For the children, the transition adds an extra level of importance - and due diligence - because they want to make sure that Mom and Dad are well-positioned financially and that each sibling is treated equitably. There’s no cookie-cutter solution to transferring a farm or ranch to the next generation, but here are four tips that will help the process go smoothly:

1. Get the entire family involved in the succession plan

Transitioning a family farm or ranch should be a family decision. Chances are that not all siblings will follow in their parents’ footsteps, so it is important to get everyone involved - and together at the same time - at each step of the process.

It is also crucial to make sure that Mom and Dad are ready to make the transition. In my experience I have witnessed parents who have avoided losing control of the family farm/ranch. Their connection to the land and way of life was so strong that it impeded progress in bringing aboard the next generation.

When discussing the transition, be sure family members share their goals and vision for the family farm/ranch. This may seem a bit old-fashioned, but you need to take this part of the process seriously by investing the time and effort to create written vision and mission statements that the entire family buys into. These statements will also serve as a reminder of what the family ultimately wants to accomplish.

2. Create an itemized list of assets, liabilities and related documents

A key step in building a transition plan is to conduct an inventory of assets and liabilities. The inventory should include assets such as farm/ranching equipment, livestock/harvested crops, real estate and retirement savings. Liabilities should include mortgages, personal loans and other debts. Also, collect financial statements, tax returns, deeds to real estate, mineral/timber rights agreements, lease agreements and wills, and related estate planning documents.

You need to know what you own, what you owe and how much income is being generated so that you have an accurate picture of the financial health of your family farm/ranch. Remember, succession is not an event; it is a process that often takes several years to complete, so the better prepared you are, the smoother it will go.

3. Bring in experts to help you along the way

Transitioning a family farm/ranch is not a do-it-yourself project. There are complex tax, accounting and legal issues at the local, state and federal levels that need to be sorted out so your succession plan achieves the desired results.

Attorneys, accountants, insurance agents and wealth management experts can bring the expertise needed to navigate challenges along the way. While this may seem obvious, it is important to only choose advisors who are experienced in agriculture and succession planning. This isn’t the type of project where you bring in a friend-of-a-friend who can do the work for less than what a veteran agriculture expert would charge. Also, make sure family members agree on your advisor team selections.

4. Create and implement the plan

Only around 30 per cent of family-owned businesses make the transition into the second generation and 12 per cent into the third generation, according to data from the Family Business Alliance. Poor execution, family squabbles and lack of financial knowledge are factors often cited in the low success rate.

A sound business plan - agreed to by your family and team of advisors - will help overcome obstacles along the way and smooth the transition. The plan should have measurable goals for both the short and long term. It is also advisable to hold monthly family meetings to review progress and modify the plan if necessary.

And be prepared for arguments. Trust me on this - the planning and implementation phase is one of the most challenging parts of the transition plan. Do not hold back on sharing your opinions because you are concerned about hurting a family member’s feelings. Now is the time to lay all the cards on the table and confront issues head on.

Succession planning and implementation is not easy, but it can certainly be rewarding when the plan is executed correctly. And by following these steps, you’ll successfully transition your business from one generation to the next and preserve your family’s legacy.

About the author
Carson has more than 25 years of experience in the accounting industry. Before joining Heritage, he owned a public accounting firm in Altus, Oklahoma, where he specialized in working with clients in the agricultural industry. Prior to that he worked in operations accounting for Stilwell Foods, and as an auditor for a public accounting firm in Ada, Oklahoma.