How to have a successful transition: talk about asset values

Asset values on the farm are continuously rising – farmland values soar, equipment costs rise and inputs trend upwards. Bringing that variability into a transition conversation can be daunting – but it’s possible.

Farm family coach Elaine Froese says it comes down to one belief: “It’s not about the money, it’s about the vision.”

Froese helps farm families find harmony through understanding. That understanding comes from having robust and tough conversations about what everyone wants and needs.

Froese says the essential conversation tools needed for transition in the face of rising asset values are:

• Ongoing communication

• Ability to listen

• Total transparency

These tools set the stage for the family to take further steps in the process:

• Assess your current state

• Set values, visions and goals

• Connect with experts

• Create a plan

Assess your current state

Is there an appetite for a conversation about the transition? Or at least an openness to begin the discussion?

Using a scale of 1 to 10 to determine family readiness, Froese says if one person is a two and another is a nine, there won’t be a productive conversation, if at all. With such a span for readiness, a family coach can help get everyone on the same page. Or a family coach can continue to discuss unreadiness with the reluctant.

Froese says no matter how much coaching and conversations, some may never be ready to talk about transition. Maybe there’s no acknowledgement of the rising values on the farm. Or maybe the values are overestimated.

Whatever the situation, if there is too much distance, the time may have come to look after yourself. If you can’t afford the price your parents want for their farm, consider other ways you can farm full-time. If your children don’t want to pay fair price for the farm, think about selling it to someone else.

Set values, visions and goals

If the vision is for the current farm business to continue, then it doesn’t matter what the asset value is – it is what it is, and that’s what creates the business. It’s unrealistic for non-farming children to expect to acquire a portion of the assets if the farm business is staying in operation.

Growing asset values on-farm underline the need for transition planning basics.

The gap — and conflict — can come in transition planning when non-farming children think it’s perfectly realistic to acquire assets, perhaps a desire driven by the rising values.

Don’t consider the farm a pie to be divided up, especially if the goal is to keep the farm in operation. As a pie, there’s the tendency to put all future income streams into the business without developing a mechanism for liquidity in a personal wealth bubble for the older generation for their future income.

Avoid a pie structure so there’s a clearer separation between farm and non-farm assets. Froese points out that this can also head off disagreements over asset values, especially land, since the root may be more about emotional attachment to the farmland than monetary value.

Connect with experts

The best time to bring in an expert such as a financial planner is now – and not waiting until you are on your way off the farm.

A financial expert looks at a transition plan and sees what changes need to be made. They can also assess or recommend experts who will help determine asset values, putting a price tag on land, equipment and inventory.

Create a plan

Once the conversation about transition starts, it’s time for the plan.

Saskatchewan lawyer Rick Van Beselaere says there are several points for the family to cover when creating the transition plan. The steps are particularly helpful when dealing with rising asset values, so that an outside source can give an objective view.

• Get the plan in writing and discuss it with everyone involved

• Have a farm adviser do a complete analysis of what’s included in the transition, including asset values

• Determine what parents need. Plan to have income until you are 102 years old, Froese says. If there’s no income for that, make it a priority.

• Solidify the production capabilities of the farm

• Figure out how much debt the farm can support

Van Beselaere says how much the farming child or children contributed to the farm business compared to their siblings may be a factor in the plan. Parents can then determine what the non-farming children will inherit. He adds cash and life insurance can be tools for compensating non-farming children.

Froese points out some families have mechanisms in their plan to pass the land to non-farming children, and farming children have access to the land through long-term rental agreements.

For more on succession planning in the face of rising farm values, check out this article from Country Guide. 

Article by: Craig Lester

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