Setting Expectations Smooths the Path for Succession Planning with Off-Farm Heirs
Succession planning can be complicated on a good day but factoring in off-farm heirs adds in another level of complexity entirely. Luckily, there are steps you can take to make this process smoother. Rena Striegel, president of Transition Point Business Advisors in Des Moines, Iowa, shared her top three considerations in working with off-farm heirs and succession planning at the Online Top Producer Summit. Learn more here.
Emotions are often tied to the succession conversation, which makes it even more difficult. But the longer you avoid the discussion, the bigger and more problematic it becomes, Striegel said.
While there are many aspects to the conversation, one of the biggest components to discuss is expectations, specifically related to legacy, participation and income.
“Do all of your heirs want to keep the farm in the family, or would they like to see the farm split up in some way? Do some heirs need the money and want to see the operation sold?” Striegel asked. “Just because they want it sold doesn't mean that you have to do it. But that's a very good thing to know so you can deal with that and get expectations aligned correctly.”
An understanding of the level of participation and access to information for off-farm heirs is important as well. Sometimes when succession planning begins, the off-farm heirs realize they don’t know much of what’s going on in the operation. They’re going to want to know more, either because of fear of the transition, or because they feel an obligation to be more involved now that someone else is transitioning out.
The third piece of the puzzle is the expectation of income from the business.
“Oftentimes, the transitioning generation may feel like there should be no expectation of income, because there really isn't cash flow to support that. However, you want to know if your heirs are expecting income off the farming assets, so you can align expectations appropriately,” Striegel said. “The desire for income may come from a couple of different things, it may be that that is part of what they are counting on for their retirement. It also may be tied to a desire to sell farmland or other farming assets, because there may be a perception of value that they want to capitalize on. You may also want to find out how comfortable your heirs are with reinvesting the income from farming assets back into the operation itself.”
All of this leads to an understanding so that your on-farm and off-farm heirs will be in a position to work together, especially after you’ve stepped out of the day-to-day. After setting the foundation the succession planning can proceed in a way that everyone feels they are included at an appropriate level, and the off-farm heirs are not going to be left out of the conversation, she said.
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