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

2. 30% Why should I care? Founding Generation Second Generation
12%
Third Generation
SHANNON 3%
Fourth Generation

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

4. Estate Planning Estate Planning
SHANNON

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

6. Challenges in farm transition95 34 90 68
SHANNON
Image source:

7. 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:

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

9. 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

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

11. 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.

12. 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

13. Family meetings
CARA
Image source: IMDB.com

14. 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

15. 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

16. 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

17. 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

18. 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

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

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

21. 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

22. 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

23. 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

24. 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

25. Don’t go it alone Lawyer Accountant / tax professional
Farm business consultant
Family communications / relations consultant
Meeting facilitator
SHANNON
Image source:

26. 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

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

28. SHANNON

29. For more information
SHANNON

30. Let us know how we did!

31. THANKS! Dr. Shannon L. Ferrell
OSU Department of Agricultural Economics