Succession Strategies Part 4

Family Business Adviser Smooths Transition Process

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Brothers Darin (left) and Devon Michel hired a farm business consultant to help turn a complicated estate plan into a functional, diverse operation. (Julie Waites)

Conflict is often the broken tooth on the farm-transition sprocket that stops farmers and ranchers from setting up a transition plan for the next generation. Finding the right help to engineer through the conflict and restore the process may take some research, but it can result in the operation running smoother with better communication, understanding and respectful peace among family members. Accountants can help you through the intricacies of capital gain, gift, estate and income taxes, and attorneys can guide you through trusts and estate settlements. However, a good family-business consultant can help you avoid or resolve potential family conflict. Also, he or she can make the farm business transition process more understandable and in line with your goals.

ADVICE FROM EXPERIENCE

Hiring a farm business consultant helped turn a complicated estate plan into a functional operation for twin brothers Devon and Darin Michel, who operate a diverse cattle, irrigated crops, hunting, cell and wind towers, and real estate development operation in Othello, Washington.

"What I learned through three previous generations of the farm being passed down in our family is that attorneys are good at constructing legal entities, but what they put together is not necessarily functional at the farm level," Devon Michel notes.

He points out the attorney who put together the multiple business entities for their parents in the early 2000s was not good at explaining how these entities were going to operate. As a result, the operation was literally not functional when the brothers inherited the business when their mom and dad died in 2009 and 2016, respectively.

They hired consultant Dick Wittman, in Culdesac, Idaho, to help them navigate the problems the attorneys couldn't handle. "Dick has a ton of experience consulting other farm operations (since 1980). We respect him immensely," Devon Michel says. "Dick showed us examples of how it could be done. He has made our operation functional. We call him even now when we have ideas or want to know how to handle something."

ON THE SAME PAGE

It takes some humility to recognize you need a consultant, "but there is no shame to having someone guide you through the process," explains Alan Hojer, a legacy consultant with First Dakota National Bank, in Yankton, South Dakota. "When I first started as a consultant, one farm client had tears in his eyes. He said, 'I can't believe I need someone to help me leave my farm to my kids.' But, I assured him it wasn't a failure on his part. My job is just to help facilitate the process," recalls Hojer, who has consulted for eight years and has been involved in farming for 32.

Transitioning the farm business is a complicated process with lots of moving parts involving different personalities and communication styles, and each operation and family is unique.

Jim Lutter, who raises and finishes bison in Gann Valley, South Dakota, hired Hojer because he "wanted to improve the possibility that transitioning our operation to the next generation would be a success. We have three very intelligent children in their 20s and 30s who want to be involved in our operation. And, we're trying to figure out how they can fit into the business and make it work as a group."

Lutter, age 65, is in the early stages of putting together a transition plan. "We have group family meetings once a month with Alan (Hojer), and there isn't a meeting you go to that you don't learn something. With four families at the meeting, you learn what others' concerns and interests are.

"Alan (Hojer) is not only a business transition consultantâ??/facilitator, he is also a mediator," Lutter says. "He picks up on things in the conversation and brings it front and center." He recognizes the benefit of having a third-party, nonfamily member who works with a lot of different people and recognizes how different personalities communicate.

A good mediator can help the next generation figure out how they best fit into the operation. "Our challenge is how to blend personalities. The amount of expertise and talent in our group is incredible," Lutter adds. "We're trying to figure out the next step. Our kids understand all the finances of the operation," he adds. "Now, they are considering, 'How do we pay for a new, full-time position? What can I offer the operation? If I need this asset, how will it be paid for?' It makes them think: 'Do I want to get saddled with this? How can I add value?'"

FACILITATING THE PROCESS

"A business consultant is like a good head coach," Washington farmer Devon Michel says. You need someone with experience and a successful track record, and you need someone who can work with all the team players. He knows a thing or two about coaches. He and his brother were on the U.S. Freestyle Ski Team in the 1980s and 1990s. "Just like in skiing, you don't get good at something if you only do it occasionally. Someone who puts together one or two estate plans per year may not be the best fit to advise your operation," Devon Michel notes.

"You want someone who has a lot of experience bringing all the 'special teams' (attorney, accountant, banker, insurance agent, family) together," the 53-year-old advises.

A farm transition planning consultant often acts as a "translator," Hojer explains. The consultant speaks "farm/ranch" to the farm and ranch owner. Then, he or she puts together a package in "financial and legal" language for the attorney and accountant. And, he or she then follows up by explaining the legal and financial alternatives back to the owners in terms the farm family can understand.

Tying this all together is the value your business consultant can add to your farm. "The importance of getting consensus and documenting the family business governance and management structures cannot be understated as an essential foundation for successful transitions," Wittman explains. "Accounting and legal experts can do a lot, but this is the area where they seldom engage. And, this is the area where family business consultants have had some of the greatest impact in helping to take chaos and uncertainty out of the transition process," he adds.

Hojer explains this can actually save the farm family money, because the farm owners don't have to spend expensive hours in an attorney's office describing their operation until the attorney understands it. And, if the family has questions, the consultant can phrase the inquiry so the attorney knows exactly what the legal question is.

"There is a real angst against paying consultant fees," admits Wittman, who, besides consulting, is the retired manager of his family's dryland crop, range cattle and timber operation in northern Idaho.

However, if you put together an unsuccessful plan on your own or with an adviser not familiar enough with your operation and family members, your family could wind up spending hundreds of thousands of dollars in court and attorney fees, he adds.

Using a consultant does not guarantee a successful transition, but "I want to increase the odds of success," South Dakota farmer Lutter stresses. "I can't take my dream and make it their dream. But, if it is their dream, we want to help them achieve it."

HOW TO FIND A FAMILY FARM BUSINESS CONSULTANT

1. Ask around -- lenders, regional farm managers, farm real estate brokers -- for names of successful, transition-planning, family-farm consultants.

2. Call your state's ag college's agricultural law expert for recommendations.

3. Choose someone who will orchestrate the process not push a product.

4. Ask for and check references. You can learn a lot from a previous or current client.

5. Wittman Consulting has accumulated a list of family business consultants.

**

FOR MORE INFORMATION:

-- Download a list of family business consultants accumulated by Wittman Consulting at https://www.dtn.com/…

-- For Part 1 of this series, please go to https://www.dtnpf.com/…

-- For Part 2 of this series, please go to https://www.dtnpf.com/…

-- For Part 3 of this series, please go to https://www.dtnpf.com/…

[PF_1122]