Succession Planning: Equal Isn’t Fair And Fair Isn’t Equal

Succession Planning in Newport, Washington Issues

Succession planning in Newport, Washington helps farmers, ranchers, and family business owners plan for succession. But throughout the succession planning process, there are always difficult decisions to make. However, the greatest challenges lie in reaching a balance between fair and equal division among children. Unfortunately, equal versus fair discussions paralyze most parents. As a result, parents often find it easier, though no more comforting, to leave the family farming operation equally divided among their children.

The outcome is often a tug-of-war between active and inactive owners and dissension in an otherwise happy family. These situations can break family bonds and incite all-out wars. At risk is the life-long career of active family members and often a failed business enterprise. In addition, sometimes business interest, commitment, and participation are unequal among family members. So, there are times when equally distributing the business is wrong and not fair.

Common Equal Versus Fair Pitfalls

The following story will illustrate the common pitfalls of equal distribution with no regard for the commitment of active family members. However, succession planning in Newport, Washington, will help families avoid these business problems when done right. And on with the story:

Timm Family Dairy Farm Example

Once upon a time, there was a dairy farm. Farmer Timm, his faithful wife Mildred, and their four children grew up working the farm together. The family milked the cows, put up hay, fed the animals, cared for the crops, and tended the vegetable garden. These parents loved their growing family and made sure to instill a strong work ethic in their children. As they grew, the children were encouraged to attend college and always to follow their dreams. One by one, the four children grew up and left the family farm. Tommy, the oldest son, attended Purdue and became an engineer working in California. Sharon, the second child, graduated from Indiana with a nursing degree and worked in Indianapolis. The two youngest, Jane, received a Master’s from Notre Dame, while her twin brother, Terry, majored in Agriculture at Purdue.

First Opportunity to Join Operation and Help

As his four children became adults, there were opportunities for Farmer Timm to automate and expand the farming operation. First, Farmer Timm got an opportunity to buy a neighboring farm. Then, the farmer next door went on and on about how his succession plan did not include his children taking over the business. He added that none of his kids were interested in running the farm and how he was too old and tired to do it.  The offer was too good to pass up, but Farmer Timm knew he would need help from his family. So Timm asked each of his children, “Do you want to make a career in farming?” “Not now, Dad,” replied his oldest son Tommy. “I can’t,” said Sharon, the oldest daughter. “Maybe someday,” explained Jane. “Yes, I do,” exclaimed Terry.

Second Request to Help Expand the Farm

Next, after seeing the careful farming methods of the Timm family, another neighbor made an offer. The opportunity was to share-crop the neighbor’s family land. “I know you’ll take care of the place. It’ll be profitable, as we have the best soil in the county,” he said. So, Farmer Timm seeing a profitable offer, once again asked his children, “If I expand, do you want to make a career in farming?” But, again, he got little to no interest from three of his four kids. “Not now, Dad,” replied Tommy. “I can’t,” said Sharon. “Maybe someday,” explained Jane. “Yes, I do,” exclaimed Terry.

Final Offer to Start Growing the Family Business

Then, along with Terry, farming over three times the ground he originally started with, Farmer Timm decided to expand the dairy operation. He weighed the possibilities, talked to the experts, and crunched the numbers. It became apparent that vertical integration is the key to a prosperous future. “If I build a plant that is state of the art,” he once again approached his kids, “do you want to make a career of farming?” “Not now, Dad,” replied Tommy. “I can’t,” said Sharon. “Yes, I think so,” explained Jane. “Yes, of course,” exclaimed Terry.

Active Versus Inactive Family and Succession Planning

The Timm farm grew into a very successful family dairy operation. But, not every child made it happen. The two oldest, Tommy and Sharon, have careers in engineering and nursing, respectively. However, the Timm twins, Jane and Terry, joined the family business. Jane and her husband, now living nearby, have devoted their careers to growing the family dairy and managing the processing plant. Terry, the ambitious son, is ever the right arm of the operation. Dad is a leading entrepreneur with one of the largest dairies in the region.

Ownership Expectations and Rewards for Commitment

As for the succession plans for the Timm children, do the two oldest kids, Tommy and Sharon, expect to inherit an equal part of the farming operation? Both declined the offer multiple times. Neither made farming their career choice, nor did either have a desire to farm. Receiving ownership would be an instant burden in their otherwise self-contained lifestyle. Their inactivity in the family farming operation should factor into ownership distribution. When it comes to being fair, Jane deserves a reward for her commitment. Yet, Terry should receive a disproportionate share of family business ownership based on his long-term dedication, loyalty, and professional development.

Key Takeaways From Our Example

Given this simple story, how do we address the need for succession planning in Newport, Washington? And what about Farmer Timm’s succession intentions relative to equal and fair distributions? Given the fictitious nature of this story, it is easy to spot the flaws of equal distributions and disregard the commitment of active family members. How can succession planning in Newport, Washington help? Using Timm as an example, we can apply sound reasoning and a gift of logic to solve this age-old problem. But how?

3 Steps to Managing Fair Versus Equal When Succession Planning

1. Establish a benchmark using real estate values, the CPI, and a factor for continuing growth.

2. Measure growth and development milestones, noting resources, including additional help, capital infusions, and new technology that make advancements possible.

3. Apply the valuable attributes of active individuals to a benchmark to substantiate differences between inactive and active family members.

Experts in Succession Planning in Newport, Washington

Do you have questions about succession planning in Newport, Washington? Would you like to increase your family’s financial security, create a smooth ownership transition, and mitigate the tax consequences? Legacy by Design is a succession planning and financial management firm exclusively for farmers, ranchers, and agribusiness owners. Contact Kevin Spafford, the founder, to speak to the leading succession planning expert in Agribusiness.