Succession By Phil Guscott

Where to start? 1). What do you want to see for your farm? 2). What does your family want for the farm? If you and/or the family don’t want to retain it then it is easy – Sell i.e. Is this a Succession Plan or an Exit Plan ? If you want it to remain in family and if you have more than one child then depending on your assets it will be an unequal distribution.

Four Principles: - 1). Must be economic for retiring generation. 2). Must be economic for farming generation. 3). Must be a plan for non-farmers. 4). Everyone must be able to live with it. All must work.

1). Economic for the Retiring Generation Four Needs: - (i) House to live in (ii) Income to live on (iii) Friends (iv) Health

i). House to live in - $ 500,000 to 1 million. ii). Income to live on - $100,000 per year. $ 60,000 ex farm cash $ 10,000 in power and vehicle $ 70,000 Tax$ 20,000 (25%) Margin$ 10,000 to change car, trip, etc. In effect $2 5% Inflation – Govt. Super at 65 = inflation adjustment Once older 75+ ? Need less income and can’t do as much.

2). Economic for Farming Generation Farmer must be bankable. Must have long term security to be able to settle one of his/her children and retire themselves. Takes 20+ years to swallow the initial debt, etc. Farming is not an easy life so be realistic.

3). Non-farmers Plan All the retiring generations assets needs to go to the non-farmers. Most people think equally.

4). Everyone must be able to live with the Plan Be open and involve everyone. Give all an ability to ask/question, etc. Look for compromise where conflicts arise. Don’t cut yourselves short.

Concepts that you need to understand: - 1). Equal is fair, but in farming, fair isn’t equal. 2). Tenant of the land. People come and go but the land remains. 3). What is inheritance? (i)If you get one you are lucky. (ii)Guaranteed retirement fund – you don’t have to save for it. (iii)Only get it when both parents are dead. (iv)For the farmer he will have to save for his/hers as the equity they are left with will have to be left in the farm if their child takes over. (v)If you can get capital early then that can give you a start in business/life.

4). How to handle the Risk: - (i) Be fully realistic with the economics for all the parties. (ii)Given the inequality hold the unequal equity so if the farmer decides to sell you can call it back and redistribute if you want/need to. Must go to the farm in your Will. (iii)Make use of outside expertise to support the new farmer in the first few years – bankers, accountants, consultants, mentor, advisory boards, etc. Look to support not smother. May not involve you given family dynamics – Father/Son. (iv)This is a business transaction not a give with one hand and take with the other.

5). Do this in 50/60’s not 70/80’s. 6). Think long term for the incoming generation i.e. leasing is short term thinking. Farming is a long term game. It takes 20 years to swallow the debt. Most farmers only have 30 years doing all the physical farming: - Must have time to build his own solid financial base. 7). For the incoming generation. Remember how this worked because you will swap seats with your father very soon. Set your goals and knock them over. Now go and see your Accountant and your Lawyer and talk about what is the best structure to achieve the outcome you and your family want.