The farm transition column in October discussing family communication sparked enough interest that, even during harvest, we received multiple emails. One such email was from North Central Iowa:
“I just finished reading this article of yours from the Oct. 19 Iowa Farmer Today paper. Our situation is different from what you’ve written, and I am curious if you think we should proceed in the same manner.
“Parents are in their mid-80s with four children; three of them are not involved in farming and I farm with my parents.
“A written estate plan has been developed and discussed, although not with all family members at once. The estate plan only designates what happens at death. There is no exit strategy for the operating assets. Dad overrides many of my decisions with the operation.
“Communication is very lacking within the family (my parents often argue with each other and the siblings don’t communicate). We have to have a discussion this winter about an exit strategy (I don’t think they want to exit or plan for it at this point). The stress it is causing is getting worse and I’m afraid it could permanently damage family relationships.
“I’ve often wondered if bringing in a specialist would help us communicate, however, another part of me wonders if it would just escalate things.”
The position of the person who sent this email is common. I refer to it as the sandwich generation problem. For whatever reason (control, tax, uncertainty, loss of basis step up, lack of options or loss of identity) farmers struggle with an exit strategy.
The transition processes discussed in the October column were dedicated to communicating the estate plan. It appears that you have had some communication of the estate plan, but lack any communication of the transition of the operating assets.
As people are living longer, if their transition plan is in their estate plan, this could delay the exit strategy to a point that it isn’t fair to the next generation looking for an entrance strategy to make a living on the family farm.
As an example, if Generation One lived into their 60s, Generation Two would have the opportunity to take over through the estate plan in their 40s. However if Generation Two now lives into their 80s, Generation Three may have to wait until they are in their 60s to enter into the same operation.
Waiting to have ownership in the operation until age 60 sounds nonsensical but is unfortunately all too real of a possibility for some.
Most farmers are fearful of the unknown. It may be as subtle as discussing your entrance strategy instead of their exit strategy. We can work through transition if we can make it simpler for the senior generation to understand the next generation’s entrance strategy one step at a time (instead of their own seemingly immediate exit strategy).
Three types of communication
Here is a review of “Communication 101” that may be of help to those struggling to communicate with those who their future depends on.
1. Verbal communication is the most common form of communication. It can be helpful to support verbal communication with both nonverbal and written communication.
As an example, we send out minutes from each meeting in writing to document and support what was spoken during the meeting.
The other side of using verbal communication is intently listening to and hearing others. This is the part that can be lacking in many family farm transition discussions.
2. Nonverbal communication is the use of body language, gestures and facial expressions. Sarcasm, self-righteousness or sometimes genuineness are all part of nonverbal communication. It may be intentional or unintentional.
The key is to raise your own awareness of your nonverbal communication to avoid unintended consequences.
For example, we have had families start meetings in prayer while holding hands. Needless to say, these meetings typically progress smoothly.
3. Written communication is helpful because it provides a record of information for reference, but can be misunderstood.
Many have regretted hitting “send” on an email before having a third party proof-read that written communication.
Written communications should be as simple and clear as possible. This is the unavoidable issue with a will or a trust, as they can sometimes can difficult to read. A good example of written communication might be a handwritten letter left with your important papers. This note left behind can go a long way to help your heirs understand the “why” of your plan.
“My banker says that I need to raise capital to reduce my debt load. He wants me to sell a farm, but my financials will not improve if we have fewer acres to farm. We need to increase cash flow without decreasing the size of our operation. Do you have any ideas on how to communicate this to someone who can help my situation?”
Unfortunately this situation is happening too often in our current rural economy. At first this individual was looking for a referral to a different banker who would more than likely give him the same answer anyway.
Instead, we are now in the process of introducing him to another farmer who was forced to sell some land due to development. The development land can be 1031 exchanged (tax-free) into other farmland. In this case, with a ready-made tenant who will take care of the land as if it were his own (because it is his own).
The seller will have an option to buy back the land under the same preferential terms that it was sold under with preferential lease terms.
The positive results in matching up families who have similar beliefs but are in different stages of their lives and typically from different communities has been rewarding. A true win-win situation for both parties.
The relationship you seek might be a traditional business partner sharing equipment, labor and input costs or it may come from joining a peer group of other farmers from different communities who are willing to invest time in exploring how others run their operations.
Forming partnerships with others may be the only chance at a future in agriculture for some of us. My hope is that you will consider getting outside your comfort zone to communicate your ambitions to your own family or maybe even to some outside your own family in an honest effort to put yourself in the best possible position to grow your farm operation for the future.
For 27 years, Steve Bohr has been a partner in the farm continuation firm of Farm Financial Strategies, Inc. For additional information on farm continuation issues or if you have a question please contact Steve via email at Bohr@FarmEstate.com or by phone at 1-800-375-4180.