Why is succession planning and communication important? Many would say that it’s so your family doesn’t fall apart after you die. I would say it’s so your family doesn’t fall apart before you die. Let’s imagine a few different scenarios.
Scenario 1: You have a ranching couple with three adult children. They are in their mid-seventies and still in charge of the ranch operations, though their middle son and his family do most of the labor. The son gets a fair wage. He’s been dropping hints lately about being 45 and not knowing anything about his future. If they are going to split the ranch three ways, then his two siblings will inherit a great deal of money, and he is going to inherit a great deal of debt, because he is going to have to buy his siblings out in order to keep the ranch. Would you rather know this information in your twenties or in your sixties? I think most agree that knowing this in your twenties makes it much easier to plan and prepare yourself for the buyout you face.
Scenario 2: Let’s say you have the same situation above. Mom and Dad don’t agree how to split the ranch, so at this point, whoever dies last will win the argument. Mom says the ranch should go to the son, and they should take out large life insurance policies that go to the other two. Dad worries that the on-ranch son is going to sell the ranch as soon as he inherits it and thus make a ton of money. Not to mention, goodbye family ranch. What should they do? Well, the first thing they should do is hire an estate planner who can help them make contingency plans that say if the ranch is ever sold, the money must be split up amongst the three children, or even put in a trust that spreads the money out over a few generations. There are many options for contingency plans, but make sure you have a lawyer and accountant on board to help you navigate the legal and tax implications. Maybe, just maybe, if on-farm son realizes that he isn’t going to profit largely from the sale of the ranch, he will change his mind early on to keep it and make it work. All that said, the earlier everyone knows the outcome, the better. The worst thing you can do is ignore the problem and let everyone figure it out after you die.
Scenario 3: Two of your five children want to come back to the ranch. The ranch isn’t big enough to support two families, but you want to give both a shot. My suggestion is to let both of them come back as employees. Let them show you their strengths and weaknesses. (Note: Don’t assume you already know their strengths and weaknesses because you are their parents. They might surprise you in adulthood.) Often, time will be your dearest friend in this situation. Maybe each sibling steps into different roles and they make it work on their own. Maybe one sibling branches off with another enterprise. Maybe they create ways to make the ranch support both of their families. And maybe, just maybe, you clearly see one sibling is not cut out to run the ranch, and you have to have the hard conversation with them about this. They are going to rebound much more successfully if you do this early in their life rather than later.
Scenario 4: You and your spouse are in your fifties. You are still working on getting the ranch from your parents, but you want to start planning early for your children. You are getting paid a fair wage that allows you enough money to contribute to a retirement fund. You know that you want to retire in your sixties, at which point you will be passing down the ranch. Your children are very aware of your plans. They are not quite old enough to know for sure what they want to do with their lives, but it’s on their radar. They will be asked to make some decisions in the next five to ten years, by which point they will have attended college and worked off-ranch for a few years. Ranch meetings are open and honest and everybody knows the plan.
I could keep laying out different scenarios; the list is infinite. Every single situation is unique. I previously posted a blog about my thoughts on succession and transitioning, and although those principles are very much what I believe, I also acknowledge that my principles may not apply or fit with your situation. Again, every single situation is unique. But the moral of this post is to get your succession planning done and communicated early to prevent problems. It will be hard at first, but it will get easier with time and when you have a plan in place, it will feel very good!
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