1 Family Farm Transition Planning ASAC annual meeting October 19-21, 2014 Gary Snider; AAC, CAC Joe Kluender, CAC, CFBA 1

2 © Farm Family Dynamics Family Business 90% of US businesses are owned and managed by families: –Wal-Mart –Cargill –Local hardware store –Family Farm Only 30% survive into the 2 nd generation Only 12% survive into the 3 rd generation -Jane Hilburt-Davis and W. Gibb Dyer, Jr., Consulting to Family Businesses 2

3 © Farm Family Dynamics Family Business How do they survive to the next generation? –Willing and able to adapt to change ◊ Business organization –Willing and able to adapt to new technology ◊ Record keeping ◊ Communication ◊ Science –Willing to pass on ownership ◊ Formal = ownership ◊ Informal = power 3

4 © Farm Family Dynamics Three Dimensional Development Model 4 Cousin Consortium Sibling Partnership Controlling Owner Ownership Axis Business Axis Start UpExpandingMature Young Family Working Together Passing the Baton Family Axis

5 © Farm Family Dynamics Change Within the Three Dimensions Ownership changes less frequently, but it is the most dramatic Family changes continuously and is the most emotional Business change is erratic and becomes more complex as it moves from stage to stage 5

6 © Farm Family Dynamics Succession Is the ultimate test of a family business 6

7 © Farm Family Dynamics Long Term vs. Short Term planning Estate Box Farm land Life Insurance Non-farm Investments Home Personal effects Operations Box Operating Entity Machinery Home site Grain bins Grain inventory Debt

8 © Farm Family Dynamics Family Business Transition Estate Business (G-1) G-2 Stake holders G-2 active

Business Transfer Compare Entities Growing the Business –Inflation –Need to divert $ Mechanics Retirement & Estate Planning Without a management transfer – asset transfer is doomed

Successful Business Transfer Requires # 1 Appropriate Transfer Method Operating Assets 1st Business Financial Strength Imperative to have excess cash flow Retirement Planning When and in what manner Estate Planning A plan giving operation control of business assets Transfer timeline with accountability

Successful Business Transfer Requires # 2 Common Goals Shared vision & values Clear Communication Value of regular business meetings Give and Take Trust & Respect Understand what makes each other tick

Transfer Steps 1. Assess retirement needs 2. Can business handle it 3. Can we get along 4. Appropriate transfer method 5. Retirement planning 6. Estate planning 7. Medicaid risk

The “Perfect” Structure Land Company Leased to Operating Company Other Land Co. Maybe Family Trust Operating Company With 1 st & 2 nd Generation “Profits Interest LLC.”

Hidden Issues Conflict Communication Trust Commitment Transparency Organization

Getting Help: Role of Consultants Lawyer Accountant Estate Planner Ownership Lawyer Accountant Estate Planner Business CAC Production Consultant Technical college Family Family Counselors Psychologist Clergy

18 © Farm Family Dynamics Take Away Thought Succession is a journey, not an event

Roundtable You ask us your questions?