Family dynamics Affect farm succession
September 29, 2012
Estate planning in agricultural operations is not an easy task, and one that takes times and dedication from all involved. However, it's not just the logistics that are a challenge; family dynamics play a large role in estate planning as well.
"When transferring the actual ownership of a family farming operation to the next generation, the entire success process itself can result in a lot of emotional stress among the family members involved," said Dr. Ron Hanson, professor at the University of Nebraska-Lincoln.
Communication is usually the biggest obstacle, because the subject can be difficult to approach.
"There are many issues which confront family members in working through this transition in a reasonable and expedient manner without disturbing the daily operation of the farm business," Hanson said.
He continued, "These succession issues must eventually be discussed by all the family members involved and resolved to everyone's agreement to allow for a successful transition of ownership to the next generation."
Many times in a family farming operation, a child will leave and go to school, and return to the farm when he or she has finished. This can create stress between the parents and the child, because the child is now an adult and may want to assume a leadership role, and the parents may still view them as a child.
"Dad has to be careful to treat this farming son or daughter as an adult person capable of making decisions and providing their own ideas," he said.
These young adults who come back to the farm will also require an income, and in some cases the farm may not be able to support two families.
Hanson said, "The critical problem is that the adult children need enough earnings to cover their family living expenses and still be able to save some money toward building financial equity for their future."
To determine what to pay the children who come back, the parents must look at the situation objectively. They should be willing to pay their children what they would pay a non-family members to work on the farm.
"In determining what is a fair wage or salary, it is important to pay the adult farm children based on what work they actually do in the business or contribute to the business," he said.
Another issue with children is that some of them may not want to return to the family farm. "Children should never feel obligated to remain in the farm business when their career interests or dreams lie elsewhere," stated Hanson.
These situations, where one or more children remain on the farm and one or more do not, can pit siblings against each other. Those who work on the farm may want to inherit the farm, and those who do not come home still want their piece of the estate.
"Farm family operations are the most difficult to handle in terms of fairness among all the children," said Hanson.
He added, "All the children, both farming and non-farming should share in the parents' estate, but in a fair and equitable division."
According to Hanson, fair and equitable are not the same. Not all children should receive the same division if they are not equally invested.
This may be the most difficult discussion to have, but one that is of upmost importance.
"Some parents even ignore this entire issue and just assume that the children will work it out later by themselves," he said.
The next issue that parents may struggle with is the fair price of the farm. "The parents cannot afford to just give their farm away or sell at the lowest bargain price," Hanson said.
He continued, "Working out a fair selling price for the farm that provides the parents with a secure financial retirement but at a price that the children buying the farm can afford as a feasible financial investment is certainly no easy matter."
This price will allow the interested children to buy the estate, but also guarantees that the parents have enough money to live without continuing to work.
Communication is the key to solving challenges with family dynamics with estate planning, and everyone needs to be on the same page.
"Parents must have a clear vision for the future of their family farm business and then be willing to discuss their ideas with their children who plan to return back home. Do all the family members involved have the same vision?" he said.
Whatever a family decides to do is up to them, but having a plan can help save the family farm.
"Being a family and staying together as a family even during difficult times or stressful situations needs to be the guiding light to help families work through these discussions which relate to the ownership succession of the family farm and transfer of management control to that next generation," Hanson stated. ❖