Build Your Transition Team
Recruit professionals for your farm/ranch transition advisory team.
September 2, 2024
‘We were lucky,” says Bethany Johnston, while talking about how she and husband Joel joined her parents’ ranching operation. “My husband and my dad are quite a bit alike — so similar in how they think about genetics and managing cattle.”
Similar preferences for cattle type and similar views on matters of management can make it much easier for multigenerational family operations to function. That’s been the case since Johnston and husband Joel started ranching with her parents, Mike and Debra Sitz of Burwell, Neb. However, Johnston knows it takes more than luck for family members to work together daily — and also work toward passing control of an operation from one generation to the next.
It takes a plan, but families often struggle with the planning process. Some don’t know how to begin and just keep putting it off. Others begin with good intentions, but stumble, stall and stop before a plan is completed. Based on her professional and personal experience, Johnston says families are more likely to persevere and will forge a better plan when they first commit to gathering good advice from not just one, but several advisors.
Advisory role
Until five years ago, she and Joel had been building their own cow herd near Thedford, Neb. Johnston also served as a University of Nebraska Extension educator for the Central Sandhills region. Directing producers to advisors with particular expertise was part of the job, especially as she began working with area ranchers seeking help with estate planning.
It’s still part of her job, though Johnston now serves a cluster of counties in the north-central part of Nebraska. Along the way, she has developed a ranch transition curriculum, become a transition trainer certified by the International Farm Transition Network (IFTN) and served as ranch transition facilitator for the Nebraska Grazing Lands Coalition.
“When I started, the focus was purely the legal aspects of estate planning. But, for most farmers and ranchers, it’s about more than what will happen to their real estate and other property after they are gone,” states Johnston, explaining that an estate plan is just part of a transition plan.
“Many producers have spent their whole lives building their operations and hoping their kids will want to carry on into the future. But, if those operations are to continue as viable businesses, the succeeding generation needs to acquire the knowledge and experience necessary to manage them,” she says. “The business also needs to be financially feasible. Transition planning is about preparing for future management, as well as future ownership. That requires communication and hard work.”
Bethany Johnston (center) says families are more likely to persevere and will forge a better transition plan when they commit to gathering good advice from not just one, but several advisors. Also pictured are daughter Jordee and husband Joel Johnston.
Living her advice
In 2019, Johnston, her husband and their daughter, Jordee, took advantage of an invitation to join her parents at Mike Sitz Angus Ranch. The registered Angus cow herd was established 101 years ago by founder Will Sitz (Mike’s grandfather). Will’s son, Bill, continued the breeding program until selling the herd to Mike and Debra.
All of today’s females, including Johnston’s own cows, trace back to the seven cow lines that made up Grandpa Will’s foundation herd. It’s a legacy the Johnstons feel privileged to continue.
But doing so required a plan, including setting up separate business entities for ownership of land and the “operation.” The operation pays rent to the land-owning entity, which assures future income for Mike and Debra Sitz. The plan allows for a transition of control over management decisions, with the Johnstons assuming greater responsibility over time, while the parents serve as mentors.
Advisory team
There’s more to the plan than that, of course, and that’s why the Johnston-Sitz family sought help from an advisory team. Johnston strongly urges other producers to recruit a trusted team of professionals, including a planning coordinator; an accountant; a financial advisor; an insurance agent; and, of course, an attorney.
According to Johnston, a planning coordinator can be particularly useful to families who don’t know how to begin the transition-planning process. This advisor can facilitate communication among family members and other professional advisors, prompting the “what if” questions and helping avoid decisions with unintended consequences.
In full agreement with the advisory team concept and the important role of a planning coordinator is Ashlee Westerhold, director of the Office of Farm & Ranch Transition at Kansas State University. She likens this team member to a “quarterback” for the planning process.
“A coordinator that’s well-versed in succession planning can help with goal setting, which is critical, and also help guide family members through uncomfortable but important conversations. The coordinator helps keep things moving forward and serves as an accountability coach,” says Westerhold, noting that her office and extension personnel in other states offer this service. On its website (https://www.farmtransition.org/), IFTN also lists names and contact information for certified planning coordinators in various states.
Accountant
Every advisory team should include a certified public accountant, according to Westerhold. An accountant can aid families in choosing business structures suited to particular situations. He or she can explain the advantages and disadvantages of creating different business entities for asset ownership, such as a partnership, limited liability company or different types of corporations.
“The coordinator helps keep things moving forward and serves as an accountability coach,” says Ashlee Westerhold, likening them to a quarterback.
They can explain options for transferring ownership of property, including the do’s and don’ts of gifting assets, she adds. Perhaps most importantly, an accountant should be able explain the federal and state tax implications. Familiarity with the tax rules and regulations, as they apply to agricultural operations, is essential.
“If you don’t already have an accountant, I strongly advise producers to find one to help with transition planning. A trustworthy accountant is a pillar in this process,” Westerhold adds.
Financial planner
Another important member of the advisory team is a financial planner who can help assess an operation’s ability to bring an additional person or family into the business. It’s important to know if the operation can pay for insurance needs of multiple households. What about retirement or long-term care for senior members of the family?
Is there potential for further expansion of the operation? Is there potential for building wealth in ways other than ownership of land and livestock? The latter question can be important when planning to divide an estate among on-farm and off-farm heirs without jeopardizing an operation’s economic viability.
Insurance agent
Westerhold says an insurance agent can help determine costs associated with medical and life insurance for families involved in the operation. Perhaps long-term care insurance should be considered. Planners need to know the costs and figure out if the operation, as it is structured, can shoulder that expense.
Attorney
Certainly no plan for estate disposition can be made without appropriate legal documents. Both Johnston and Westerhold recommend employing an attorney familiar with both state and federal estate and tax laws. An attorney can help families choose the legal tools best suited to achieving their goals, including the aforementioned business organization entities, and prepare necessary documents such as a will, trust, durable power of attorney and healthcare power of attorney.
“Producers need to use the right kind of attorney,” insists Westerhold. “The right attorney has the expertise to implement tools for protecting assets and transitioning management of an operation while the patriarch is still alive.”
Interview potentials
Attorney, estate planner and Harrisburg, Neb., rancher Pamela Epp Olsen echoes the call for qualified advisors. She advises producers to use discernment when building a team.
“You should expect professional expertise and confidentiality, but choose people that you’re comfortable talking to — people that will listen to you. Make sure you can understand when they talk to you,” states Olsen, recommending that producers interview prospective advisors and ask for references.
“Be sure to ask prospective advisors what it will cost to have them help you. Even an attorney should be able to tell you. If they can’t or won’t, walk away. Find somebody else that is a good fit,” says Olsen, noting how building an advisory team may be the most important part of estate and generational transition planning. She urges producers to identify their own team members and start planning.
“You don’t owe your children an inheritance, but you do owe them a plan,” says Pamela Epp Olsen, a Harrisburg, Neb., attorney, estate planner and rancher.
“You don’t owe your children an inheritance, but you do owe them a plan,” offers Olsen. “That starts with identifying your assets and considering how those assets are owned — the ownership entity form (partnership, limited liability, trust, etc). To decide what to do with your assets, consider not only your goals but the goals of your heirs. What are their hopes, dreams and expectations?”
Consider the value of “sweat equity.” In other words, think about how to provide fair treatment to heirs directly involved in the operation, compared to heirs who have not been active in the operation.
If the ranch is left to heirs in equal shares, does the heir carrying on the operation pay rent to off-ranch heirs? Does the on-ranch heir have opportunity to buy out the others? If so, will it be at full market value or a discounted price? An operation may not endure unless a transition plan addresses questions like these. Even worse, families may divide and never again share Christmas dinner.
According to Olsen, if there is a shared desire for the farm or ranch to continue, there must be a plan for making it happen. The older generation must consider how to pass on physical assets equitably, but not neglect the sharing of knowledge that a successor needs to make management decisions. Don’t forget to establish a timeline for transitioning control.
“Get professional help and make a plan that works for your situation,” urges Olsen “If you don’t decide what will happen to your estate, the state has a plan and will decide for you. If you don’t plan for your farm or ranch to live on after you’re gone, the operation may not survive.”
Editor’s note: Troy Smith is a freelance writer and cattleman from Sargent, Neb.
Topics: Business , Management , Labor , Succession planning
Publication: Angus Beef Bulletin
Issue: September 2024
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