Farm succession is more than the technical details of legally transferring the ownership of assets and tax management. Farm succession can be messy because it involves people, and people have different emotions, values and goals. These can cause tensions among farm and family members. Powering through the technical process of succession without acknowledging and addressing the tensions in your situation will give you a plan, but how long will it last when the tensions build to a breaking point?
It is normal to have tensions around farm succession. As noted, it can be emotional – and for many, change is something to be avoided. Normalizing the fact that there will be tensions and taking the time to consider your farm’s tensions can set the farm on the path to a more resilient succession plan. It is better to have awkward and necessary conversations now rather than later.
The 5 areas of farm tensions
In 2009, researchers in Pennsylvania interviewed farm family members in various stages of succession planning. From these interviews, they identified five tensions present in these conversations. Similar tensions were found from focus group research conducted in 2017 in Wisconsin. While your farm may have unique tensions, there are five common topics where tensions arise around farm succession: finances, communication, inheritance, change and control.
1. Finances
In the Pennsylvania study, this was referred to as “profit versus affordability” – in Wisconsin, it was described as the competing financial needs between the generations. Both research studies noted increasing land values, coupled with tighter profit margins, make this one of the more common tensions. When farms are managed by one person, couple or generation, financial recordkeeping and analysis may focus on tax document preparation and numbers to support loan requests. However, when bringing another person, family or generation into consideration, more comprehensive financial analysis provides information for necessary conversations around the past performance of the business and the capacity of the farm to support more people. If analysis of the past three to five years indicates the farm has adequate capacity and performance, the questions around this area of tension tend to be: "What does the owner generation need/want for the assets?" and "What can the successor generation and the farm afford to pay for the assets?"
2. Communication
In both the Pennsylvania and Wisconsin studies, farmers recognized the need for clear conversations around succession planning. Unfortunately, many farms rely instead on assumptions. In Wisconsin, the word used most to describe tension about communication was “transparency,” especially around finances, roles and decision-making. If the succession is between parent and child, both generations must work to break any unhelpful communication patterns. The other tension under the communication category was “starting the conversation.” A surprising number of farm families do not have intentional conversations when a family member returns to the farm to work. At a minimum, farm members should discuss the job description, compensation and possible pathways to management and ownership for the incoming generation. These conversations happen more often when the incoming person is not related.
3. Inheritance
This tension concerns the following question: Should the distribution of assets at the owner generation’s deaths be equal or fair among the heirs? This is one of the most common questions farms must answer. Inheritance can symbolize love, trust and competence. If most of the owner generation’s net worth is in farm assets needed for the farm to continue, equal distribution can put the future of the business at risk if the non-farming heirs want the value of the assets immediately. Recent research from Oklahoma State University (OSU) used a representative farm model to analyze options to transfer ownership to an on-farm heir while considering inheritance distribution with an off-farm heir. The OSU research indicates that unequal distributions improve the likelihood of transferring the business and of the business reaching basic success milestones over a 20-year period. Equal distribution of farm assets stems from the desire to treat all children fairly, not considering that the children’s contributions to the business can vary after they become adults. This is an example of family goals and values influencing business decisions to the detriment of the long-term viability of the farm. And this fairness value can be in direct conflict with another common farm family value – legacy.
4. Change
The Pennsylvania researchers described this as “progress versus continuity.” The owner generation sees no reason to make changes to the operation (continuity), and the successor generation wants to put their education, experience and management skills to work in the hopes of making a positive mark on the business (progress). The challenge in this tension is that the owner generation may take the suggested changes from the successor generation as judgment. The owner generation hears: “You’ve been doing it wrong all these years.” While in some cases that is exactly what the successor generation means, many more times it is not the intention. The successor generation is eager to show their value and see the business move forward. If the owner generation has gotten the farm to a place where a succession plan can be considered, they’ve made some right decisions along the way. The successor generation would be wise to consider this and acknowledge this fact. On the other hand, the decisions the owner generation made were made in the past, and now the successor generation may have a completely different “set of facts,” such as the economy, markets and environmental regulations. The farm and family members may want to define continuity less in the way things get done, but more broadly in the facts that the farm continues to be a farm, or the land continues to be in family ownership, if those are important goals they’ve identified. And progress may be the path to reaching those goals.
5. Control
This was described as “retaining versus letting go of control” in the Pennsylvania study. Insisting on keeping control of decisions and ownership by the owner generation many times stems from unspoken fears they may have. They may harbor fears about whether the next generation is ready to take over, about the successor losing the farm and the legacy, or about being dependent on the farm assets and the next generation for their retirement income. However, the biggest fear, and perhaps the one hardest to admit, even to themselves, is losing their sense of identity. The owner generation may have decades of being “The Farmer” and making all the decisions, big and small. If they are no longer the one making the decisions, how will they define themselves?
Once farm and family members identify their tensions, and discuss them as a unit, they can build strategies to address them.
Even if your farm doesn’t identify all the tensions outlined here, using all the strategies listed in the sidebar can foster honesty, transparency and a deeper understanding between generations that can generate a more comprehensive and resilient succession plan. What are the tensions you see in your farm/family? What are some strategies you can use to address them?
References omitted but are available upon request by sending an email to the editor.
Strategies to alleviate tensions
Financial strategies
- Determine each family’s living needs
- Analyze the farm financials and determine long-term viability
- Determine the goals of the owner generation
- Foster transparent conversations around farm financials
Communication strategies
- Discuss everyone’s visions and intentions
- Write shared visions and goals for the business
- Ask genuine, open questions
- Listen to the answers (really, really listen)
- Build a meeting habit
Inheritance distribution strategies
- Determine
- The retirement needs of the owner generation
- The assets essential for the business to continue
- Discuss
- When did the successor generation start contributing to the business?
- Did their labor/management build the owner generation’s net worth?
- Is the successor generation’s labor/management helping maintain the business?
- Is the successor generation helping the owner generation age in place by providing home maintenance or caregiving?
- Was the successor generation fairly compensated for their contributions, or are there sweat equity expectations?
Change strategies
- Acknowledge that change is hard
- Review the history and decisions (good and bad) made to get the farm where it is now
- Consider ways the next generation can have responsibilities and decision-making authority
- Define what continuity means for the owner generation
- Define what progress or success means for the successor generation
Control strategies
- Discuss the transfer of farm management decisions
- Determine the retirement needs of the owner generation
- Develop contingency plans for farm assets if anyone needs to leave the business
- Seek opportunities for the owner generation’s next phase of farming/life
