Farm transitions can be tough. And they’re only tougher when there’s a lack of fairness during the process.
The daughter of BDO’s Jim Snyder (now retired) thinks farm families will be more successful if they view fairness as “helping everyone be successful” rather than merely “being equal”.
I’ve been challenged to create a session on fairness in farm transition, and here’s what kept me up at night: mulling my thoughts and experience on the topic into a practical tool for you!
Here’s what I came up with (best remembered by utilizing this acronym):
Financial Transparency, Attitudes, Intent, Roles
When you utilize this tool during a farm transition, it will help keep the process fair, which can ultimately result in a smoother transition.
Financial transparency is an essential part of farm transitions.
Parents should not be silent about their desires for the future. They’re encouraged to openly share the farm books, viability, and their personal wealth situation.
Merle Good has coined the term “personal wealth bubble.” It refers to money that parents can draw income from for the 20 years after transition. They can access this money for gifting to heirs, farm, and non-farm business heirs.
Have you sought out a financial planner to create more certainty about your future financial security? Do it.
Debt servicing, gifting, and farm viability also fall under the financial transparency header.
Debt servicing is another important part of the financial transparency discussion.
How much can the next generation really afford to service? What parts of the farm assets are you willing to gift, roll over, or have purchased?
If you want to give an equity position to non-farm heirs, you can do that with well-written land rent agreements. Check to see if your successor wants to be in business with his or her siblings.
Looking for more help and information on succession planning? Don’t miss this article.
Have you ever asked your adult children what they expect?
Money does not equal love in my books, but for many it does.
I’ve seen parents fret about working to give money to less fortunate children in an unrealistic attempt to make all the kids economically equal. This is a foolish goal.
Many young people with great educations and entrepreneurial skills can end up wealthier than their farming parents.
Many of the young adults I have the joy of working with say things like: “Elaine, we just want our parents to have some fun and enjoy the fruit of their labour. We will be okay. We’ll find a way to make it work.” (Yes, I know you’re wishing you could adopt these kids!)
Consider the gifts of vehicles, house down payments and university degrees ($200K) that you and the farm have already facilitated…then ask yourself:
What do you owe your children?
Do you have a clear picture of how many families the profitability of the farm can support?
Are you having a hard time saying no to the adult child who is seeking to return against the wishes of your current successor(s)?
This is where operating agreements, codes of conduct and shareholder agreements are helpful tools for role expectations.
I’ve written more about evolving farm family roles, including how these roles change during a farm transition. You’ll find that here.
Attitudes about money create havoc when your heirs feel that “love equals money.”
You know too many sad stories about families who never speak to each other after the parents die.
What money scripts are you carrying around? Do you have a scarcity mindset or one of abundance?
(Give “The Soul of Money” by Lynne Twist, “Wired for Wealth” by Brad Klontz or “Moolala…why smart people do dumb things with their money” by Bruce Sellery a read.)
I suspect that many fights are about the high value put on money and land, and a lack of forgiveness or grace to allow parents to make their own choices.
My experience with estates has been interesting when the main goal is to have richness in relationships and not worry about the size of the inheritance, if there even is one.
So, Bruce Sellery’s penetrating question is, “What does money mean to you?”
Spend some time over coffee talking about it with your spouse and your adult heirs.
What we believe, our values, and cherished beliefs will drive our behaviour.
If someone is secretive about their plans to be fair, think about open-ended questions that you can draw them out with.
“What does fairness look like to you?”
Listen carefully to their concerns.
Many folks have been “burned” by their family of origin experiences, and there is usually some history or a back-story that is driving their decision making.
Ask, “How did you get the farm from your family?”
Be curious about women who maybe did not get much compared to their siblings.
Intent is another key tool for conflict resolution with farm transitions.
As mediators and conflict resolution communicators, we work hard to find out what each person’s intent is, as well as what they truly desire.
In the case of farm transitions, there are many players with various needs: the founders, the successors, the non-farm heirs, sibling groups, in-laws, and extended family or grandparents.
As you can see, there are a lot of players to consider in the family dynamic web.
Work hard to be clear on your intent, and then listen for what effect that has on the other party.
In my case, I was clear with my parents that I did not expect a large sum of money from their estates, as they needed their finances to focus on the farm’s financial success.
My intent was to have their love, as well as time for my family—as much as they were able to give while they were alive. We spoke about this openly at a family meeting facilitated at their accountant’s boardroom.
My mother died a short 6 weeks later.
If parents don’t agree on their intentions for the fair distribution of assets or gifts, or they fight about what fairness is, then the task is to work with the founder’s vision first.
Role expectations about what a good day on the farm looks like for dad and mom, and when the successor can be the main manager with control, are also fairness discussions.
Is it fair for an eighty-year-old to still hold the majority of ownership and control? Is it fair for his sixty-year-old child not to have power? Or the grandparent’s 35-year-old employee/grand-child to not have a concrete equity position?
What do you want your legacy to be? Start figuring out what fairness in farm transition looks like to you. Then act!
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