Avoid These 9 Succession Planning Pitfalls
“Death and taxes are the only certainties in life,” as the saying goes. Yet many small businesses avoid discussing the topics of succession and estate planning, and farmers are no exception.
A full one-third of America’s 3.4 million farmers are over 65, according to a 2017 Census from the U.S. Department of Agriculture, and another million or so are nearing retirement.
But what’s even more important is that fewer than one in four farmers have a succession plan. “That’s a recipe for disaster,” according to Alex Vasichek, a leading Agricultural Focused Financial Planner at Elevate Financial in Fargo, ND. “The more decisions you can make now, the fewer family feuds you’ll have to referee later.”
More often than not, competing and counter claims can lead to confusion. When you work with a professional to develop a plan, you can avoid many of these nine common pitfalls:
1. Succession vs. Estate Planning: What's the Difference?
Succession planning provides for the continued successful operation of a farm or ranch according to the owners’ wishes, during their lifetime (think retirement). Estate planning ensures the proper distribution of assets after the owners/s die or become incapacitated. By having a clear plan for both, farmers can help ensure that their assets are distributed according to their intentions and minimize potential conflict among family members.
Only 1 in 4 farmers have a succession plan.
2. Fair Shares
When it comes to assessing and distributing assets, “fair” and “equal” may not be defined the same way. How can that be? Distributing liquid assets equally results in a clean and clear result. However, if some family members have built up more equity in the family business by staying on the farm, while other siblings have moved away, he or she might have more at stake.
3. Raise red flags, not white ones.
Never surrender. It’s natural to be concerned about how your family’s succession will play out. But don’t be discouraged by it. Get started now. Oftentimes it takes watching a neighboring family struggle through the aftermath of succession or estate planning to realize how unprepared they are for life after a loved one’s death. “It pains me to see families who no longer speak to each other,” warns Vasichek. “It happens more often than you’d think. If you see something, say something so you can get out ahead of challenging situations.”
4. Mine. Yours. Ours.
What happens when a spouse dies and their partner remarries into an existing family? Large families bring with them lots of joy. But they can be challenging as well. The more competing claims there are each with legitimate concerns the more difficult they will be to sort out without a plan. Find a seasoned financial advisor who can act as a quarterback on your behalf.
5. It's never too late... until it's too late.
Planning for succession can be complicated and riddled with challenges. But it can be made less stressful when you have an advisor who has been through succession and estate planning many times, with many different families of varying sizes and types. “I’ve seen a range of situations,” says Vasichek. “From multi-state estates to blended families.”
It’s not uncommon for close relatives to become estranged because they feel like they did not receive what they deserved. In some cases, these feelings of resentment can be so severe that it leads to legal battles and even the potential for a complete breakdown of family relationships.
” .. fair isn’t always equal”
6. Don't do it alone.
The very definition of family implies “joining a group of people united by certain convictions or a common goals.” Make sure your financial planner is part of a talented “family” of tax, accounting and law professionals to create a succession plan that succeeds for you.
7. Silence is not golden.
Communicating with family is not always pleasant or easy. But it’s necessary. Never stop talking. A lack of communication can lead to a lack of trust.
8. Taxing Situations
If you own property in more than one state, be aware of how different state tax laws may affect your business differently. Tax laws are always changing. If you don’t keep up, you might find yourself on the wrong end of an intimidating tax bill.
9. Land Valuation
Land Value can change from one acre to another based on topography, water value, production history, infrastructure in place and a number of other considerations. Pay attention to nearby land auctions to monitor price fluctuations in your neck of the woods.
Succession planning that succeeds demands rigorous checks and balances best left to experts. Financial planners who specialize in agriculture can help you make sure your legacy continues along the path you envisioned.
Neither MML Investors Services, LLC nor any of its employees or agents are authorized to give legal or tax advice. Consult your own personal attorney legal or tax counsel for advice on specific legal and tax matters. Estate Planning services are provided working in conjunction with your Estate Planning Attorney, Tax Attorney and/or CPA. Consult them for specific advice on legal and tax matters.
Alex Vasichek is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, LLC, Member SIPC, 100 S 5th St Unit 2300, Minneapolis, MN 55402, Tel: (612) 333-1413. Red River Financial is not an affiliate or subsidiary of MML Investors Services, LLC or its affiliated companies. CRN202604-4289998
