Transition Tools and Tough Talks 2017 Learn at Lunch Webinar Series - March 28, 2017 Dr. Shannon L. Ferrell OSU Department of Agricultural Economics

30% Why should I care? Founding Generation Second Generation 12% Third Generation SHANNON 3% Fourth Generation

Causes of business failure after a generational transfer Inadequate estate planning Insufficient capitalization Failure to prepare the next generation properly SHANNON Source: Spafford, 2006

Estate Planning Estate Planning SHANNON

One piece of a larger puzzle Estate Planning First Steps Communicate Plan for Business Succession Implement plan SHANNON

Challenges in farm transition 95 34 90 68 SHANNON Image source: http://www.royal.gov.uk/ThecurrentRoyalFamily/Overview.aspx

Who needs a transition plan? Everybody! Especially vulnerable: Young families Farms on verge of “viable size” Farms with limited asset liquidity “Complex” families SHANNON Image source: https://www.theodysseyonline.com/ten-benefits-family-farm

The value of transition planning $4,750,000 Farm Business Value SHANNON Time Illustration courtesy Dick Wittman, Wittman Consulting

Five steps to a successful transition Determine where you are now Communicate with stakeholders Develop a business succession plan Develop a plan for your estate / gifts Deploy your plans / evaluate / revise SHANNON

The importance of inventory Personal and real property Business relationships People SHANNON

Your current financial status What is your financial status? How will (can?) farm support Mom and Dad in retirement*? KFMA average living withdrawal: $68,250 Modifications for additional benefits suggests ≈ $90,000 Do we have the capacity to support more people? Do we have a business or collection of assets? SHANNON – with question to CARA on “financial and emotional security” * HA! Like farmers retire.

Five steps to a successful transition Determine where you are now Communicate with stakeholders Develop a business succession plan Develop a plan for your estate / gifts Deploy your plans / evaluate / revise SHANNON – with introduction to CARA – LEAD INTO VIDEO

Family meetings CARA Image source: IMDB.com

Establish the environment Who: ALL stakeholders What: a talk about the farm When: NOT a holiday Where: A comfortable place NOT anyone’s home Free of distractions Why: so we can discuss ideas for future of the farm and ranch CARA

Five steps to a successful transition Determine where you are now Communicate with stakeholders Develop a business succession plan Develop a plan for your estate / gifts Deploy your plans / evaluate / revise SHANNON

Critical issue #1: The farm kid / city kid conundrum Economic perspectives Farm kid: Asset is business, so invest and grow City kid: Asset is investment, so generate returns or sell Equal ≠ equitable Desire & ability for farm roles Policies for Employment Equity contribution SHANNON

Critical issue #2: Sweat equity plans “Someday kid, this will all be yours” Problems: IT’S NOT A TRANSITION PLAN (nor an estate plan, really) Lack of enforceability Masks profitability problems Discuss desires to participate & think about how to create opportunities for involvement Family employment/business equity plans vital SHANNON

Critical issue #3: The heir-less a-parent Same challenge, very different perspective: Provide cash flow Disposition of assets Alternatives Liquidate assets Hire operator Seek outside successor Selecting a successor Evaluating skills Formalizing relationship Don’t forget to engage stakeholders SHANNON

Elements of Transition Founder On-farm heir Off-farm heir Separate Entity Ownership SHANNON Control Unrelated Successor Participation

Elements of Transition Founder On-farm heir Off-farm heir Separate Entity Ownership SHANNON Control Unrelated Successor Participation

Five steps to a successful transition Determine where you are now Communicate with stakeholders Develop a business succession plan Develop a plan for your estate / gifts Deploy your plans / evaluate / revise SHANNON

Step 4: Develop estate / gift plan Guardian nomination for minor children Beneficiary designations Powers of attorney Business Healthcare Advanced directive for health care Will Trust (?) Life insurance (?) SHANNON

Five steps to a successful transition Determine where you are now Communicate with stakeholders Develop a business succession plan Develop a plan for your estate / gifts Deploy your plans / evaluate / revise SHANNON

Step 5: Deploy your plans / evaluate / revise Engage a strong team of professionals, and make them work together Prepare stakeholders; what if they had to implement plan today? Regularly evaluate plans and revise if needed SHANNON

Don’t go it alone Lawyer Accountant / tax professional Farm business consultant Family communications / relations consultant Meeting facilitator SHANNON Image source: http://www.avclub.com/article/read-charlie-browns-baseball-managing-career-recon-216181

The “hit by a ____________” plan Literally, what do you do tomorrow? Prepare plain-English plan in advance Step-by-step Current & thorough farm records CRITICAL Where to find needed resources Documents Keys and passwords Contacts Who to ask for help List of records to keep What can I do / after consultation / with court’s approval SHANNON

“No battle plan survives contact with the enemy.” -Colin Powell SHANNON

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For more information http://agecon.okstate.edu/farmtransitions SHANNON

Let us know how we did! https://okstatecasnr.az1.qualtrics.com/jfe/form/SV_74LPrcu3vQ8YaJn

THANKS! Dr. Shannon L. Ferrell OSU Department of Agricultural Economics shannon.l.ferrell@okstate.edu