MSU Extension Office: Succession & Transfer Planning

This is a series of articles focusing on estate and legacy planning. Authors are Kaleena Miller, Madison-Jefferson County Extension Agent, kaleena.miller1@montana.edu, and Marsha Goetting, MSU Extension Family Economics Specialist, marsha.goetting@montana.edu.

An important goal for Montana farm/ranch family enterprises is to transfer land and business to the next generation. “The process is challenging because it includes a complex web of economic, legal, and family decisions,” says Marsha Goetting, MSU Extension Family Economics Specialist.

“Some families avoid the process completely and die without a will, trust, or any type of transfer plan in place. Other families confess they started the process but found they did not want to deal with the conflict that arose because of the differences among members about goals, values and feelings about fairness and equity,” says Kaleena Miller, Madison-Jefferson County Extension Agent.

The very first question that needs to be addressed in this process is whether the business is profitable enough to be transferred to the next generation. Families may need to consult with their CPA to help them make this evaluation since emotions may get in the way of making this assessment internally.

A colleague in Minnesota found in her studies of families two types of planning: transfer and succession. Transfer planning includes the legal and economic decisions involved in turning over the ownership of the business, land, and other property to the next generation. Succession planning includes the family decisions involved in managing the value and role conflicts that normally arise when families discuss the transfer of farm/ranch business, land, and other property to the next generation. Problems can arise for both the younger and older generations if the transfer and succession processes never begin.

“In my research in Montana, members of the younger generations have shared they find it difficult to start a discussion about the farm/ranch transfer and succession processes. They fear older generations may perceive them as being overly interested in their inheritances. On the other hand, when members of the older generations bring up the topic, younger generations may not be responsive. They do not want to think about their grandparents or parents dying,” says Marsha Getting, MSU Extension Family Economics Specialist.

Often there is a certain level of denial involved. That denial can be caused by issues that are hard for individuals to discuss, such as change, money, disability, mental incapacity, or death. Every family also has certain issues that bring strong emotions to the surface or are points of disagreement among various family members. Most family members know what these “hot buttons” are and want to avoid confrontations.

Families who have been through the transfer and succession planning processes suggest starting at an individual level. Next, the issues need to be discussed at the couple level. Finally, a discussion needs to be held at the family level for each unit in each generation. If Dad feels it’s particularly important that the farm/ranch remain the family’s possession while Mom is ambivalent, this is an issue that Dad and Mom need to come to an agreement about before they begin succession planning with the next generation.

“Having a farm business meeting about transfer and succession planning can be very frustrating if individual members of the units within the generations have not identified what values and goals are really important to them—first individually and then as a family,” emphasized Goetting.

If members within family units reach an agreement about their goals before a discussion at the business level, negotiation often goes more smoothly. Granted, there still may be times of tension or conflicts about differing values and roles in the family business among the generations. But the process will be more effective when all parties have an opportunity to identify and express their needs.

“Families who have worked together in a business for years often think they know what the other’s expectations are, but may never have really asked them,” said Miller. For example, what would be each family member’s responses to these questions?

1. Which child(ren) intends to run the farm/ranch or will be involved in the farm/ranch?

2. Will non-farming/non-ranching children have ownership of significant farm/ranch assets currently owned by the parents?

3. What are the feelings of on-ranch/farm family members compared with off-ranch/farm members about the ownership of the business property?

Because of the strong bonds inherent with the heritage, land, and lifestyle, generation transfers are more frequent in agriculture than in other businesses. When people work together as closely and for as many hours as they do in a farm/ranch operation, disagreements are normal; conflicts are normal, too. However, unresolved conflicts can have major impacts on the long-term success and viability of the farm/ranch operation. They certainly can have repercussions on any transfer plan as well.

Preparing farm/ranch family business members for transfer and succession planning is a part of the older generation’s responsibility to the younger generation. The legal and economic aspects of the transfer plan (transfer planning) are important. Connectedness among the family business members and the working out of future management strategies (succession planning) is also critical to the success of any transfer plan.

MSU Extension has a publication containing worksheets for each member of the older and younger generations designed to help them focus their thoughts and examine their feelings about succession planning issues. Transferring Your Farm/Ranch to the Next Generation is available from the Madison-Jefferson County Extension office at 287-3282.