Succession planning defined

According to Planning Today for Tomorrow’s Farms, a manual available through The University of Tennessee Extension, succession planning is “a continuous process that involves transferring knowledge, skills, labor, management, control and ownership between generations.”

This differs from estate planning because instead of purely giving assets to the heirs, a succession plan outlines steps to the heirs eventually taking on the business after retirement or death. 

Ferguson says there is a lot more involved than transitioning the assets alone. It includes taxes, business plans, retirement, land use strategies, management transfer, family goals, labor, an exit strategy and more.

“This this is the reason we say there needs to be a team to approach,” he adds.

Ferguson says with all these different things at play, having a transition team composed of a financial advisor, lawyer and extension educator or communication specialist are helpful. 

Beyond that, he advises these conversations take place off the farm. Often the on-farm environment can lend itself to heightened emotions that aren’t helpful during this type of discussion. He finds that farmers he helps tend to have more productive conversations in another location. 
Friedel agrees this is a place everyone must work together. 

“I feel very passionately the succession planning has to involve everybody,” she says. “Maybe there’s different parts and pieces that involve different people, but you have to involve other family, heirs, and professionals. Then once you have a succession plan, it has to work in tandem with your estate plan.”

Starting place 

In the spirit of transparency, Ferguson recommends producers do something against the grain — open their financial books with heirs who intend to manage the farm one day. He says information keeps heirs from unknowingly taking on a financial burden they cannot bear and ultimately having to sell. 

He credits James A. Bennett, Sunbelt Farmer of the Year for Virginia, with saying, “I firmly believe that adhering to tradition is the greatest obstacle to production agriculture.” 

From his perspective, no truer words were ever spoken relative to succession planning in agriculture. While being private is often the comfort zone, producers must be willing to have an open line of communication with heirs, adjusting with circumstances to set forth a successful transition plan. 

Friedel has seen this play out firsthand. In fact, their family revisits their succession plan every so often because as the business grows and changes, as does the plan. To make those pivots, though, the planning must start somewhere. 

“I think so many of us operators, we just get stuck in paralysis by analysis,” she says. “Just start, that’s the Number 1 piece of advice I have. Start small. You don’t have to have it all figured out the week, month, or even year that you start your planning.”

Friedel recommends an assessment of the business and its goals.  

Having this understanding may help down the line when unexpected offers or opportunities present themselves. For example, Ferguson points to real estate developers offering a premium for farmland. 

Friedel mentions long-term leases as an enticing opportunity for agricultural families, as well, and particularly those aging farmers hoping to hold on to land but wanting to slow down. 

Another roadblock can be the parents. Ferguson says in his 38 years of experience, he has seen people are reluctant to discuss this topic, and it is awkward for the children or heirs to initiate. It becomes easier if a plan starts when the asset is acquired. 

“For most of us, it’s probably not going to be a one and done,” Friedel adds. “There is absolutely no expectation that in 15 or 20 years our estate plan is going to look the same as it does now. We know that things will change, and our estate and succession plans will too.”

The Friedels have two young children, and they plan to weigh their interests and desires alongside the business growth over time to refine their plans. 

“No matter what you do or do not do, one day your farm or ranch will transition,” Ferguson adds. “You can either have a will that will pass on the assets, you can have a transition plan — or if not, it is often a sale and a division of those assets that’s going to happen.”

Lasting considerations

When it comes time to mesh the succession plan and estate plan, many families struggle with ensuring multiple heirs are cared for and the business can stay afloat. 

“Equitable is not always equal,” Friedel says. “We want to provide for everyone equitably, but that doesn’t mean it has to be that everyone shares and shares alike.” 

One example she offers is a piece of property being given as undivided interest to all siblings, such as was the case with their family land. Later, that scenario is likely to run into legal issues when there are many cousins that now all own this piece of ground together, and it is not enough to sustain multiple families, nor do some heirs necessarily want it to. Everyone got an equal share in the beginning, but it left everyone without any family land in the end. 

This is where sweat equity comes into play along with considering personal goals of the heirs. In many instances, one heir has shown more interest and perhaps even worked for the business over their lifetime. 

“Does that sibling deserve more for a larger share?” Ferguson asks. “Most planners will tell you yes, either a two-to-one or a three-to-one share; but it is still determined by the parents.” 

Depending on how the succession plan is designed, the business may transition when the elder operators retire. If that is the case, Ferguson reminds producers to consider costs related to their living when they no longer run the business. 

End of life care can be costly. If not planned for, it could cause a business to go under as they liquidate to afford those costs. On the flip side, if the owner unexpectedly passes, a life insurance policy in place beforehand could be the difference in allowing a family to continue operating or having to sell everything. 

All the considerations can be overwhelming, but that is why Ferguson and Friedel agree on bringing on professionals to help. They say to take it one step at a time, and the family will be glad for that later. 

“It’s a long, frustrating process,” she says. “A lot of people don’t like talking about what happens when they’re not around anymore. So, it often doesn’t get done, but I’m a big proponent of spending the money and putting in the work to plan well. It is truly the greatest gift you can leave your heirs and your family.” 

Editor’s note: Kayla Jennings is a freelance writer from Mason, Texas.