Transition Planning Takes Care of Tomorrow’s What Ifs

Transition and succession planning was the focus of the January 26 South Dakota Farmers Union (SDFU) Producer Hour webinar featuring Poppy Davis, a Certified Public Accountant who teaches and advises on agricultural business and policy issues affecting family-scale farmers and ranchers.

“Succession planning may be one of the most important topics that farmers and ranchers need education on,” said Chad Johnson, a Groton farmer and SDFU board member. “I am a firm believer that without planning, I could have been that guy who farmed his entire life and then lost his farm when his parents died because there was no plan in place.”

In fact, not knowing what would happen to the farm if his dad, uncle or mom passed haunted Chad. 

“Sometimes dad, mom and my uncle would all jump in one vehicle and go to town together. It always scared me. What if something awful, like a car crash happened and took all three of their lives? And left me not knowing anything or having anything in place,” said the Groton farmer.

That all changed after he heard a talk on farm succession during a 2014 Farmers Union Young Producers event. Although the talks were not easy, they did happen and plans were put in place. When his dad passed in 2017 and his uncle in 2019, Chad could focus on grieving their loss and moving forward to ensure their wishes were carried out – because he knew what they wanted.

So where do you start? Davis began by explaining the terms “transition” and “succession.”

Basically, a transition plan is temporary and a succession plan is permanent. “A transition plan is in place for the short term, if something goes wrong, you have a solid plan in place to take you and your family and business through a temporary absence,” Davis explained. “If you have a good transition plan, your estate plan will fall into place naturally.”

Transition plans include things like ensuring more than one person in the family knows the passwords to important accounts, can legally access operating loans, checking accounts, and ensure that more than one person has the authority to do basic things like sign checks and pay bills.

“Imagine it is a bad day if something happens to you and you are not able to act and function, and now the person who is closest to you can’t do what they need to do because they have to get extra authority given to them. Have a plan in place ahead of time,” Davis said.

She explained that in some cases, the plan is as simple as having a second person down as a co-owner of a checking account.

“This was a timely talk,” said LeAnn Moe, a farm partner. “One of our friends recently lost her husband to COVID and she is having to use a lawyer to gain access to their accounts because they were all in her husband’s name.”

To help families begin the transition conversation, Davis provided all webinar attendees with a spreadsheet of questions. “As you identify questions that receive low scores, areas you don’t have a plan for, write those down and make it your goal to answer that question and figure out who is doing that thing.”

Moe attended the virtual seminar by herself but plans to re-watch it with her husband and son, Chet, who is hoping to return to the family farm fulltime after college. “I printed off three spreadsheets so we can each fill one out and then talk.”

Even though Chet is only 19, Moe says it is never too early to get things in place. And even though they have a transition and estate plan in place, after Davis’ talk, Moe and her husband thought of a few additional steps to take.

Making changes is all part of a transition plan, Davis explained a transition plan as a working document.

Once a family fills out the questionnaire and understands the areas they need to work on, Davis encourages them to sit down with a professional. When it comes to selecting a professional, she has some tips:

1.   Look for an attorney or financial planner who is local, who understands farming or ranching and comes with recommendations from friends or neighbors.

2.   If a trust is part of your estate plan, only work with an attorney who understands federal farm programs and estate planning. (This advice was so important, Davis highlighted and underscored it.)

3.   If your operation has some unique elements that you know will require a special expert, Davis says to begin with the local expert. “If you go to someone expensive and fancy, because you have something unique, the fancy person may be good at that one strange thing but may not be very good at the straight-forward part of the farm.”

Following the SDFU event in 2014, Johnson connected with a local attorney. “Our lawyer did a good job of giving us a lot of “for instances,” Johnson said.

He added that it was helpful to have a professional throw out the “what ifs” so his family could address those in their plan. Recently, due to COVID, Johnson spent 40 days in the hospital. His mom and wife were able to take care of the farm bookwork without him because they knew where the passwords were safely kept and they had legal access to all financials.

In addition to the financial and business side of the family farm or ranch, Davis said having a plan in place is beneficial for the human side of things.

“Who will be in charge of what and who will receive what? And what legal tools will make it happen,” Davis asked. “There is a difference between informal agreements and legal agreements. “mom always said that was mine and mom always said I was getting it. Yeah, well, mom never wrote it down.” This happens in almost every family and it is not a good thing and does not help people grieve and move on.’”

Davis shared the example of the family dining table. An object that does not have monetary value but has sentimental value.

Wessington Springs’ farmer, Pat Fastnacht appreciated Davis’ ability to explain transition and succession planning in a way that was clear and easy to understand.

“As a farmer, there are obviously things I do a good job on, as far as production and caring for livestock. There are a few things I lack skills in – and this would be one of them,” he said.

Connecting farmers and ranchers with information and resources to help them succeed, is a focus of South Dakota Farmers Union. “Family farmers and ranchers are the backbone of rural communities and our state’s number one industry. It is our mission to support them through grassroots policy and education,” said Doug Sombke, President of SDFU.

To watch Davis’ webinar, visit www.sdfu.org and click on the Media Library, webinar link under the News & Events tab. This link will also provide you with access to the spreadsheet of questions. The webinar featuring Davis is one of four in the SDFU Producer Production Series SDFU offers at no cost. The next webinar will be held February 9 at 1 p.m. (central) and focus on four megatrends in agriculture. Mike Pearson, a cattle producer and ag lender will lead the one-hour webinar. To register for this free webinar, visit www.SDFU.org.