It is a life-changing experience when children receive a family farm or ranch from their parents. For many families, their farm or ranch is not only their largest financial asset, it represents the collective blood, sweat and tears of generations of family members.
The television show “Yellowstone” has been a hit since debuting on the Paramount Network in 2018. Audiences have watched in record numbers, following the dramatic ups and downs of fictional Montana rancher John Dutton and his family.
Of course, the real-life challenges of farming and ranching usually don’t involve a constant series of attacks from political rivals, wild bears and hired militia groups, but the industry certainly does have dangers to be best avoided. One central theme in the show is the fight to retain the land that the Dutton family has owned for six generations, and it’s an important real-life “plot point” when considering plans for families transitioning farms and ranches to the next generation.
For many families, the farm or ranch will represent their largest financial asset, and just as it is for the Duttons, the product of many years of family care and protection.
As such, here are 4 planning tips to consider when passing down a property to succeeding generations:
1| Determination of family goals and clear communication
Unfortunately, the Duttons are often not on the same page as a family with their goals. This makes for dramatic plotlines but isn’t as ideal for successful family transitional planning.
Instead, families should discuss plans and intentions for the farm or ranch’s future, including who will take active and passive roles in leading the operation. Direct communication beforehand will help to alleviate problems or issues that arise after the property has been transitioned and will allow for continued accountability. Failing to thoroughly discuss the future of the property can subsequently leave the possibility of confusion.
2| Consultation with experts
This type of transitional planning is far too complex for the average person to successfully navigate without professional help. John Dutton can conveniently consult with his daughter Beth, a financial shark, on important issues, but having a family member who’s a wealth management expert often won’t be the case for most families. The daily management of farm and ranch estates can be burdensome and achieving the greatest financial return can be complex. Among the important objectives to consider in an overall plan for property management:
• lease negotiation and identifying lease alternatives
• land inspection and monitoring conservation methods
• farm accounting and income tax compilation
• evaluation of crop marketing and risk management
• evaluation of crop insurance needs
• auditing owners’ share of expenses
• managing communication between owners and family members
Clearly, these are complicated issues that need direction and guidance from professionals.
3| Examination of the business balance sheet
Creating an inventory of assets and liabilities is an essential step in constructing a succession plan that will thrive from origination to realization. In order to assess the future of the property, current financials will need to be categorized, detailed, and examined.
Budgeting and operations require comprehensive analysis to determine whether the current business plan is succeeding, failing or could be better operated. This is also an area where a professional’s skills can be crucial to get a fuller picture.
4| Have a succession plan and then execute it
From show context, we can likely guess that John Dutton does not have a firm ranch succession plan in place. He’s not alone. According to the 2017 U.S. Agriculture Census, the numbers of 55- to 64-year-old farm owners indicating that they have succession plans in place is just 29%, while the number of 65- to 74-year-olds is only 27%. The numbers are even lower for those aged 75 and higher.
Argent works with clients to devise and execute a strategic plan of action to generate the greatest amount of net worth from property ownership. But having a plan is only half the battle. Implementation and execution guarantee that not only will the wheels be set in motion but that the details will be taken care of — giving a carefully considered succession plan its best chance for success.
Protecting your legacy
On “Yellowstone,” John Dutton is fiercely protective of the land that has been handed down to him by his forefathers. But he’d be wiser to work with a team of professionals to solidify a succession plan. Argent is dedicated to preserving your family legacy, and the goal of our farm and ranch management team is to relieve the daily management burden and worry over your farm and ranch estates, while helping to achieve the greatest financial return.
If you have questions or concerns about setting up a generational succession plan, or selling your farm or ranch, Argent’s special asset administration services team is here to assist you.
Bruce Carson, CPA joined the Heritage Team in 2018 and brings more than 25 years of experience in the accounting industry. He serves as relationship manager for Heritage Trust. Bruce holds a bachelor’s degree in Accounting from East Central University. He is a Certified Public Accountant and a member of the Oklahoma Society of Public Accountants.