Shirtsleeves to Shirtsleeves in Three Generations or Fleeing Heirs

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Shirtsleeves to Shirtsleeves in Three Generations or Fleeing Heirs: The Financial Future of Your Farm

by | Sep 13, 2018 | Uncategorized

Shirtsleeves to Shirtsleeves in Three Generations or Fleeing Heirs: The Financial Future of Your FarmLast month we talked about the transfer of wealth on the farm and the tension that goes with it. Well, there is more. Financial planner Anthony Williams describes a study by Investment News suggesting that 66% of children ultimately fire their parent’s financial advisor once they receive their inheritance. These folks are called fleeing heirs.

I would like to know the statistic for farm families, as many don’t even have a financial planner!

What You Want in a Financial Advisor

Financial advisors for farmers should be set up to work remotely. Communicating while not in person has become much easier, especially with video conferencing tools like zoom.us or skype. We also ask our advisor to visit our farm on occasion.

You also need great chemistry with your financial planners and any accountants for your family. I suggest farm children develop a relationship with their parent’s advisor well before any major changes on the farm, like farm transition or death. This is a great way to create trust and empathy.

Lastly, you want to find an advisor that will take a holistic approach to manage your money and wealth.

Fleeing heirs - financial management

Fleeing Heirs and Financial Advisors

Perhaps fleeing heirs have their own issues. They are DIY folks who like to invest their own way with fewer fees. Maybe the heir never had any intention of working with mom’s advisor. Perhaps the heir has been living as though he/she already had a windfall and while he/she may like dad’s advisor, is not interested in having anyone keep tabs on her finances. And rather unfortunately, to prove dominion and control over the assets, the heir must move the assets to someone else. They flee.

Shirtsleeves to Shirtsleeves in Three Generations

If you haven’t heard the expression, shirtsleeves to shirtsleeves in three generations is about losing wealth in the succeeding generations. A study by Williams Group revealed 70% of families will lose their fortune during the lives of the second generation, in other words, 70% of more than 3200 families had succession plans fail. On top of that, ninety percent will lose their wealth during the lives of the third generation.

Why? Many reasons: taxes, inflation, poor investment decisions, adverse market conditions, and the natural dilution of assets as they are shared among generations of heirs. But there is another reason that I think resonates for farmers:

The most compelling reason fortunes are frittered away is because younger family members are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship. They have grown up with plenty of money and are a step or two removed from the work ethic or drive of the people who made it for them.

Read that last paragraph again, out loud.

Fleeing heirs - shirtsleeves to shirtsleeves in three generations

Does your successor have great financial management skills? If you died tomorrow would the farm start a downward spiral spin into financial loss? Can you picture some young farmer in your community who was given much and lost a lot?

Wes and I are a second generation who has watched our farming parents struggle, live frugally, and we have been able to acquire greater wealth through hard work, and the blessing of God. Our successors are the third generation who don’t have personal experience of want or struggle.

How do we prevent the loss of wealth? We communicate.

[Tweet “Don’t let fleeing #heirs cause your #farm to lose its wealth from succeeding #generations.”]

Communicating to Prevent the Loss of Wealth

This means family discussions and meetings, using a farm family coach, and having an accountant who is willing to work with all generations. Most young farmers don’t want to hear any more about the high-interest rates of the 1980’s but your stories of trials will help keep wealth decisions in perspective. Share your values, your money scripts. What do debt and risk management mean to you?

Many wealthy farmers that I coach have no intention of selling the entire farm to their heirs. The next generation can only afford to buy shares or some assets but not the whole piece. The parents engage the younger generation by asking about their dreams and farm vision, getting them excited about their own future.

The founders can help fund that future, but in a responsible, business-like way with well-written agreements and professional input from coaches, accountants, financial planners, and lawyers. This takes intentional, regular communication.

The other option of not communicating or preparing the next generation to manage wealth will be going from shirtsleeves to shirtsleeves in three generations, and having the family destroyed or ripped apart over money.

Find a financial planner that can serve your farm family for more than one generation. Fleeing heirs may not be receiving sound advice or if they are receiving financial wisdom they are choosing not to act upon it.

Helping the Next Generation

I suspect that many successors in their early 30’s need a professional accountability partner in the form of a financial planner to help them navigate keeping their wealth and growing it for their aging years. David Chilton, author of The Wealthy Barber says that “wait” and “save” are not part of the next generation’s vocabulary.

The parents or founders also need to take responsibility for their avoidance behaviour. They know that fairness issues or inheritance talks cause conflict, so rather than embracing it as a risk management strategy for the secure legacy of the farm business, they are silent. You need to face your mortality. You need to get comfortable with discussing your estate plan with your children and hire someone to keep the conversations safe and respectful.

fleeing heirs - helping the next generation

One farm family in Alberta found it very helpful to watch my video on “Finding Fairness in Farm Transition”.

Again, you have the right to distribute your wealth as you chose, but if you highly value richness in relationships, I suggest you use all the tools you can to have courageous conversations that preserve understanding and relationship.

If your financial advisor is nearing retirement, are you grooming his or her successor to be part of your family’s planning process? This is where I rely on my CAFA colleagues to provide great referrals for farm families across the country. Click here to find one near you!

The next generation is not used to waiting. They want respect and have a more collaborative planning style. Young farmers on twitter share heaps of information, quickly. Our successors want goal-based solutions, so it is time for each generation to get clear about what they want, and when they want it to happen.

Money is a form of energy to create growth and good. What does wealth management mean to you?

Write to tell me you have had a financial planning conversation with the next generation on your farm and I’ll send you my “What do I really want” worksheet.

Follow Elaine on Social for More Helpful Farm Family Advice!

1 Comment

  1. George Malmstrom

    Thank you for this Elaine. You’re right on the nutshell. Sometimes it is a challenge working with the next generation & your information is helpful. Wishing you the best!

    Reply

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