Succession plan urged for family farm transition

Tom Lynn
Bernie Wolf (from left), Karen Wolf and Dan Wolf (brother of Bernie and father of Karen) are part of the multigenerational Wolf Family Farm, which has operated west of Addison for 160 years.
Published on: 11/1/2008

For many farm families, it seems there's always something more urgent to deal with than a business succession plan.

Chores consume much of their time, and it's a constant challenge to keep up with the daily demands on their time and energy.

Yet as thousands of Wisconsin farmers push the middle-age envelope and beyond, a business succession plan ought to be near the top of their priority list, according to farm experts.

Age isn't always the issue. Agriculture ranks as the second most dangerous occupation, just behind the mining and quarrying industry. There are roughly 100,000 disabling farm accidents a year, according to the National Safety Council.

"Not having a succession plan could be the biggest risk that we overlook on our farms. These are complex, capital-intensive businesses," said Shelly Mayer, executive director of the Professional Dairy Producers of Wisconsin.

If farmers have a plan for what happens to their business when they retire, die or are disabled, it's often a mystery to even their families. One Iowa State University survey of 1,500 farmers, for example, found that more than half of them told no one about their succession plans.

Nearly one-third of the farmers surveyed said they never intended to retire.

"But at some time, ultimately, you can no longer be there to make the decisions. That's a fact of life," Mayer said. "And if you die suddenly or are disabled, who is going to carry on the family business? What's the plan to protect your family's assets?"

Foresight pays off

In Allenton, the Wolf family farm has done succession planning for decades. Four brothers: Ray, Dan, Bernie and Paul run the farm that milks 620 cows and has 3,000 acres of cropland. Their parents, Albert and Mildred Wolf, gradually turned over ownership of the farm as a corporation.

"Dad had a lot of foresight," Dan Wolf said. "Over the years he gifted stock in the corporation, formed in 1972, so that we didn't have to pay more inheritance tax than necessary. In return, we take care of him now. Anything that he wants, he can have."

The Wolf farm now supports about 24 families, including the families of 18 employees. Last year the Wolf brothers started selling shares in the corporation to their employees so they could participate in the ownership.

Dan Wolf, 55, is easing his way into retirement and gradually turning over responsibilities to others.

"You have to do that as you get older," he said. "It's important to let others have the opportunity to lead and make decisions. Sure they're going to make mistakes. We all do . . . but that's the way you learn."

For many farmers, turning over control is the hardest part of their succession plan. They might tell their children that they can come home and run the family business, but in reality they won't let go, said Ron Hanson, professor of agricultural economics at the University of Nebraska.

Hanson was in Wisconsin recently to lead a symposium on business succession planning. One thing he's learned in more than 30 years of consulting is that many farm failures are due to family conflicts rather than business difficulties or natural disasters.

"Driving the roads in Wisconsin, you can see the farms that have been divided or sold off because the family couldn't get along," Hanson said. "Nothing puts family values more to the test than conflicts over money or property."

Review operation first

The key to a successful succession plan, whether it's for a farm or any other type of business, is a thorough review of the entire operation, including management, finances and contingency plans.

Someone's instinct might be to leave well enough alone and not get into the thorny issues of succession planning. But ignoring the issues won't make them go away, and dealing with them can be a healthy exercise that improves the business and gives long-term security.

"You need to have a succession plan that everyone understands with no surprises," Hanson said.

In writing the plan for a family-owned business, the participants should be treated fairly but not necessarily equally, according to Hanson.

Family members with little or no interest in continuing the business shouldn't be given the same consideration as those who have already invested many hours into keeping it going. Decisions should be made based on what's best for the business.

The plans should be spelled out in writing as legally binding commitments.

"If you come home to the farm with just hope strings and promises, nothing in writing and nothing discussed, it's one heck of a risk because people and situations change," Hanson said. "Everyone has the assumption that if they come home to the family farm, work hard and do the right things, then someday it will be theirs. That's the big promise, but very seldom does it happen that way because there are too many obstacles that come up."

A succession plan will probably involve lawyers, accountants, bankers and other professionals. It also could mean turning over the family farm to non-family members, said Paul Dietman, director of the Wisconsin Farm Center, a state agency that helps farmers with business succession planning.

"Sometimes you can find a young person with a lot of potential and bring them on as hired labor, helping them get some cows and gradually getting them into the business," Dietman said. "We can show farmers what's worked and what hasn't worked in plans like this."

The timing of farm ownership transfers is important.

"I have seen some parents turn over too much authority too quickly, and the children couldn't handle it. And I have seen parents who wouldn't turn over meaningful control right up to their dying day," Hanson said.

Having a last will and testament is not the same as a business succession plan. It can be disastrous to wait until there's a funeral to decide who takes over the family farm, according to Hanson.

"Relationships are sometimes broken for generations over this, and there are families where people no longer even speak to each other over some type of inheritance feud," he said. "The family farm gets split up or lost. When the smoke clears, no one has benefited except the lawyers."