Transition planning 101: Make a plan for the family farm

INDIANAPOLIS — Transition planning starts with facing the realities about what is happening on your family farm.

“Just go ahead and own what’s happening,” said Jeanne Bernick, partner at KCoe Isom, during a presentation hosted by Indiana Agricultural Law Foundation.

“If there’s a monster in the closet, we want to know about the monster so we can deal with it. It’s the surprises and not knowing that makes it harder to go through the planning.”

There are many myths that make it harder to work through conflict or transition planning.

Myths

• We love each other, so running a business together will be easy.

• We’ll agree on everything because we are family.

• We can keep family issues, and business matters separate.

• Those stories are only about “other” families.

The fact is that family baggage — sibling rivalry, jealousy, controlling parents and unresolved conflicts — doesn’t disappear when you walk through the company door.

It’s better to face the facts so you can plan for a better future, Bernick said.

Facts

• Every business is dysfunctional at some level.

• There is no perfect family unit.

• The myth of perfection makes it tougher.

• Choosing sides is destructive.

• Their heart is in the right place.

• Dysfunction does not go away.

• It can be managed.

• Fixing it takes commitment.

• Resolution requires hard work.

Bernick emphasized that there’s a difference between transition planning and estate planning — but both are necessary.

Estate planning is the paper and financial aspect. These planning techniques are designed to mitigate the estate tax and prepare for wealth and asset management.

Transition planning involves the “human side” of transferring a business, including developing management and leadership skills, honoring the knowledge of the business founders and providing clarity for family members through the process.

Bernick said there are four main steps to transition planning: communicating with stakeholders, developing a business succession plan, developing a plan for your estate and gifts, and deploying your plan.

Transition planning requires:

• Working out what the exiting generation wants to do — where they’ll live and what they’ll do in retirement.

• Identifying the needs and aspirations of the next generation.

• Maintaining and, if necessary, repairing relationships between family members.

• Managing expectations among family members.

• Setting agreements for the non-farming children.

Each step of the transition process requires clear communication.

And remember, Bernick said, a plan is always better than no plan.

For those who already have a plan in place, now is an excellent time to review it. Estate plans should be reviewed every three to five years, Bernick said.

Significant changes in tax law, changes in family dynamics, retirement and business changes are good times to review the plan.

In A Nutshell

• There are lots of moving pieces in a family business.

• Communication is critical.

• It’s never too early to start talking about transitioning and what you want.

• A plan is better than no plan.