Some Do's and Don'ts for Successful Farm and Ranch Family Estate Transfers

Risk has always been a part of agriculture. But today, risks facing farm and ranch families face are different from those they faced a few years ago. One significant change in the risk environment involves government agricultural policy. As policy makers increase their confidence in producers' ability to make sound business decisions through less restrictive farm programs, they are giving more responsibility to ranchers and farmers to manage their risks. Deficiency payments have been eliminated (USDA, 1998). Federal farm price support programs are being phased out by 2002 (personal communication, Dennis A. Kaan, 7/15/98).

One of the riskiest, most stressful, and under-researched issues of critical importance to ranch and farm families is estate or transition planning (Anderson & Rosenblatt, 1985; Barnes & Hershon, 1976; Hedlund & Berkowitz, 1979; Keating & Munro, 1989; Kohl, 1976; Rosenblatt & Anderson, 1981; Russell, Griffin, Flinchbaugh, Martin, & Atilano, 1985; Turner, 1993). Avoiding shared estate transfer planning and family decision-making can increase family stress levels (Anderson & Rosenblatt, 1985; Rosenblatt, deMik, Anderson, & Johnson, 1985; Weigel, Blundall, & Weigel, 1986). Successful farm and ranch estate planning includes transfer of assets (inheritance) and handing over the business control (succession) to the next generation (Boyer, 1980) in a way that increases a family's economic and interpersonal well-being. Estate or transition planning is not something a family completes in a month or a year. Transition planning is a process that begins with the birth of the first child and takes a lifetime to accomplish. It is fraught with challenges.

Preferably, all three components of transition planning--transferring the labor, management, and land--are transferred gradually (Keating & Munro, 1989) and simultaneously with incremental steps over decades as both generations are ready (Zimmerman & Fetsch, 1994). Coping strategies used by farm and ranch families in successfully managing transition planning include planning early, open communication among family members about transfer plans, and allowing feelings to be expressed and acknowledged (Anderson & Rosenblatt, 1985; Fetsch & Zimmerman, in press; Russell et al., 1985; Zimmerman & Fetsch, 1994).

Schumm and Bollman (1981, cited in Weigel & Weigel, 1990) "found that the families who were able to communicate about needs, desires, and future possibilities were able to [make] the smooth transition of the farm operation from the parents to the children over a period of years. Communication, common goals, and limited conflict of loyalties all help preserve the sense of unity in two-generation farm families." (Weigel & Weigel, 1990, p. 450). Many writers strongly recommend open communication among all family members as a critical component in successful transfers (Anderson & Rosenblatt, 1985; Fryer & Thorne, 1993; Hedlund & Berkowitz, 1979; Keating, 1996; Rosenblatt et al., 1985; Russell et al., 1985; Weigel et al., 1986). Also essential to successful transfers are clear leadership, non-defensiveness, flexibility, and the skills and willingness to achieve family consensus (Keating, 1996; Rosenblatt et al., 1985; Salamon, Gengenbacher, & Penas, 1986; Zimmerman & Fetsch, 1994).

Sons who perceived themselves having a significant influence in family decision making were nearly twice as likely to follow their fathers in farming as sons who did not (Laband & Lentz, 1983). Knowing what is expected to happen in the future enhances the younger generation's coping, even though they may not like the plans (Weigel et al., 1986). Self-reliance (Cook & Tyler, 1989; Ferguson & Engels, 1989; Rosenblatt, 1990) and social support from spouses, family, and friends (Cook & Tyler, 1989) are additional coping strategies reported to be useful to successful transferring families. Social support even increased the probability that a farm operation survived in farming (Schulman & Armstrong, 1990).

All family members benefit from successful transition planning with reduced stress in marital, sibling, and intergenerational relationships (Fetsch, 1997). Open communication benefits mothers and daughters-in-law the most (Russell et al., 1985). Mothers are removed from the conflict-negotiation position; daughters-in-law have some input into the decisions. The receiving generation gains control and a sense of well being. The transferring generation secures a retirement quality of life (Turner, 1993). Successful transition planning benefits the entire family by maintaining the farm family business economic value (Keating & Munro, 1989).

Ranch and farm families desirous of establishing a successful transfer plan need accurate and current legal, tax, economic, and human relationship information. Understandable legal counsel may be difficult to find. Tax laws may be difficult to understand. Interpersonal family problems may appear impossible to solve.

Technical Tools and People Skills

Part of the reason estate planning is highly stressful is the lack of knowledge about and use of available technical legal, economic, and tax-related tools. Another part of the transfer problem is the lack of familiarity with and use of human relation, shared goal setting, and strategic planning people skills (Fetsch, 1997). One elder rancher put it plainly, "Our technical and business skills are fine; it's our people skills that need help!" Ranchers and farmers are telling us their weakest link is not technology or information. They're saying their weakest link is human relationship management. One young rancher put it plainly, "If the people in this family aren't working together, how is the ranch operation going to hold together for the next generation?"

Based on the results of our Integrated Resource Management Estate Transfer Workshops with over 200 farm and ranch family members (Colorado State University Cooperative Extension, 1998) and on the extant research literature, we identified 18 technical tools and people skills. Cooperative Extension and adjunct faculty can provide farm and ranch families these tools and skills to assist them in solving their family and social problems.

Technical Tools

Wills
Revocable/Irrevocable Living Trusts
Testamentary Trusts
Power of Attorney
Partnership Agreements
Using Life Insurance in Estate Planning
Special Use Provisions
$500,000 Capital Gain Exemption of Personal Residence
Use of Gifts

People Skills

Conflict Management Strategies
Problem-Solving Strategies
Communication and Listening
Shared Goal-Setting Strategies
Steps to Reach Family Consensus
Conducting Effective Family Meetings
Team Building Strategies
Decision Making Strategies
Strategic Planning Steps

Each operation is unique because each family operation is unique. So the proper "mix" of technical tools and people skills necessary to create a successful transfer plan from one generation to the next will likely be unique to each family operation. Virtually all individual- and family-owned ranches and farms are eventually faced with the same problem--How do we transfer information, values, and the land to future agricultural producers?

The purpose of this article is to offer some practical do's and don'ts to Cooperative Extension professionals, who pride themselves in providing research-based information. For those Cooperative Extension faculty working with farm and ranch families with estate or transition planning, here are some research-based steps we can use to help farm and ranch families solve some of the most vexing people problems associated with transition planning. By teaching these steps to farm and ranch families, Extension can increase the likelihood that their family businesses will survive well into the 21st century.

10 Ways to Sabotage Family Estate Transfer Plans

There are at least 10 ways to create an unsuccessful transfer plan.

1. Procrastinate. Don't write a will or transfer plan. Let the children worry about it after you're gone (Anderson & Rosenblatt, 1985; Hedlund & Berkowitz, 1979; Kohl, 1976).
2. Avoid planning or making decisions (Anderson & Rosenblatt, 1985).
3. Don't discuss the subject of estate transfer. Keep information from younger family members. This is a sure way to increase family conflict (Anderson & Rosenblatt, 1985; Weigel et al., 1986).
4. Blame others for problems. Stay angry (Zimmerman & Fetsch, 1994).
5. Do all you can to block the younger generation from any involvement in goal setting or decision making until they are middle aged (Zimmerman & Fetsch, 1994).
6. Refuse to listen to other family members' viewpoints (Anderson & Rosenblatt, 1985; Hedlund & Berkowitz, 1979; Weigel et al., 1986).
7. Hold on to total control of the family business (Keating & Munro, 1989).
8. Assume others know what you want. Avoid discussing your wishes about transfer with family members (Anderson & Rosenblatt, 1985).
9. Make sure all your sense of worth, your identity, and life's meaning come solely from the business. Resist transferring to the next generation. This way they have the least influence and the most stress (Keating & Munro, 1989).
10. Pay no attention to wake-up calls like a farm/ranch accident, illness, death, or major choice point by an offspring (Anderson & Rosenblatt, 1985).

What Should and Can We Do?

Below are 10 recommendations for creating successful, amicable family estate transfer plans.

1. Plan early (Anderson & Rosenblatt, 1985; Dingle, 1984; Zimmerman & Fetsch, 1994).
2. Write a shared family vision, for example, "We want our family ranching to be harmonious, consensual, enjoyable, and profitable" (Fetsch & Zimmerman, in press).
3. Write shared goals (Fetsch & Zimmerman, in press; Zimmerman & Fetsch, 1994).
4. Seek the assistance of competent transition planners--rural estate planners, attorneys, accountants, financial planners, insurance agents, Cooperative Extension state specialists, family mediators, and other people-skill professionals (Fetsch & Zimmerman, in press).
5. Maintain open communication and effective problem solving (Fetsch & Zimmerman, 1998; Russell et al., 1985), especially with issues of perceived inequity (Anderson & Rosenblatt, 1985; Zimmerman & Fetsch, 1994).
6. Listen so well you can repeat back to the speaker's satisfaction what they say and feel rather than lose your temper, yell, scream, or get violent (Fetsch & Zimmerman, in press; Zimmerman & Fetsch, 1994).
7. Allow and acknowledge feelings about the transfer process (Zimmerman & Fetsch, 1994). When people know what is planned, they are better able to cope, even though they may not like the plan (Weigel et al., 1986).
8. Make no assumptions about the feelings or plans of others (Weigel et al., 1986).
9. Build self-esteem. Respect each other (Weigel et al., 1986).
10. Reduce the older generation's involvement in heavy labor, management (Salamon et al., 1986), and land. Increase the younger generation's involvement in all three (Keating and Munro, 1989) simultaneously (Fetsch & Zimmerman, in press; Zimmerman & Fetsch, 1994).

Survival of the family ranch and farm in the midst of population growth, corporate concentration, environmental concern, and the phasing out of federal farm price support programs is a challenge. Nevertheless, with the proper "mix" of technical tools and people skills, many farm and ranch families will position themselves among those who survive well into the 21st century.

References

Anderson, R. M., & Rosenblatt, P. C. (1985). Intergenerational transfer of farm land. Journal of Rural Community Psychology, 16, 19-25.

Barnes, L. B., & Hershon, S. A. (1976, July-August). Transferring power in the family business. Harvard Business Review, 54(4), 105-114.

Boyer, R. S. (1980). Succession, retirement and inheritance (Socio-Economic Paper No. 10). (Available from Ministry of Agriculture, Fisheries and Food [Publications], Tolcarne Drive, Pinner, Middlesex HA5 2DT.)

Colorado State University Cooperative Extension. (1998). Integrated Resource Management estate transfer workshop [Brochure]. (Available from Author, Department of Human Development and Family Studies, Colorado State University, Fort Collins, CO 80523.)

Cook, J. R., & Tyler, J. D. (1989). Help-seeking attitudes of North Dakota farm couples. Journal of Rural Community Psychology, 10, 17-28.

Dingle, D. T. (1984, June). Passing down the family business. Black Enterprise, 14(11), 173-178.

Ferguson, S. B., & Engels, D. W. (1989). American farmers: Workers in transition. Career Development Quarterly, 37, 240-248.

Fetsch, R. J. (1997). A farm and ranch family needs assessment of interpersonal skills and financial management tools. Manuscript submitted for publication.

Fetsch, R. J., & Zimmerman, T. S. (in press). Marriage and family consultation with ranch and farm families: An empirical family case study. Accepted for publication by the Journal of Marital and Family Therapy.

Fryer, D. J., & Thorne, P. M. (1993). Estate planning checklist for farm families: Approaching the porcupine. British Columbia: Ministry of Agriculture, Fisheries and Food.

Hedlund, D., & Berkowitz, A. (1979). The incidence of social-psychological stress in farm families. International Journal of Sociology of the Family, 9, 233-243.

Keating, N. C. (1996). Legacy, aging, and succession in farm families. Generations, 20(3), 61-64.

Keating, N. C., & Munro, B. (1989). Transferring the family farm: Process and implications. Family Relations, 38, 215-218.

Kohl, S. B. (1976). Working together: Women and family in Southwestern Saskatchewan. Toronto: Holt, Rinehart and Winston of Canada.

Laband, D. N., & Lentz, B. F. (1983). Occupational inheritance in agriculture. American Journal of Agricultural Economics, 65, 311-314.

Rosenblatt, P. C. (1990). Farming is in our blood: Farm families in economic crisis. Ames: Iowa State University Press.

Rosenblatt, P. C., & Anderson, R. M. (1981). Interaction in farm families: Tension and stress. In R. T. Coward & M. W. Smith (Eds.), The family in rural society. Boulder, CO: Westview.

Rosenblatt, P. C., deMik, L., Anderson, R. M., & Johnson, P. A. (1985). The family in business. San Francisco, CA: Jossey-Bass.

Russell, C. S., Griffin, C. L., Flinchbaugh, C. S., Martin, M. J., & Atilano, R. B. (1985). Coping strategies associated with intergenerational transfer of the family farm. Rural Sociology, 50, 361-376.

Salamon, S., Gengenbacher, K., & Penas, D. (1986). Family factors affecting the intergenerational succession to farming. Human Organization, 45(1), 24-33.

Schulman, M. D., & Armstrong, P. S. (1990). The farm crisis: An analysis of social psychological distress among North Carolina farm operators. American Journal of Community Psychology, 17, 423-441.

Turner, M. J. (1993). Retirement planning behaviors among Arkansas farm families. Arkansas Farm Research, 42(3), 8-9.

U.S. Department of Agriculture. (1998, January). Risk Management Agency's risk management education program. (Available from author, Washington, DC, 20250.)

Weigel, D. J., Blundall, J. S., & Weigel, R. R. (1986). Keeping peace on the farm: Stresses of two-generation farm families. Journal of Extension, 24, 4-6.

Weigel, D. J., & Weigel, R. R. (1990). Family satisfaction in two-generation farm families: The role of stress and resources. Family Relations, 39, 449-455.

Zimmerman, T. S., & Fetsch, R. J. (1994). Family ranching and farming: A consensus management model to improve family functioning and decrease work stress. Family Relations, 43, 125-131.

Note: Work on this article was supported by a grant from the Colorado State University Agricultural Experiment Station and Integrated Resource Management Program. Appreciation is extended to Norman L. Dalsted, Thomas G. Field, Gordon Niswender, and Toni S. Zimmerman, Transfer Research Team members. Appreciation is also extended to Tina Blake and Megan Murphy for their assistance with this article.