Succession planning – Start with the hard stuff


Katherine English, of the Pavese Law Firm, advises many of her clients on succession issues.

When it comes to succession planning for an agricultural operation, the first thoughts that come to mind may not be the most important ones or those that should be addressed first. Insurance planning? Getting a tax plan going for transferring property from one generation to another?

Hold on for a second.

What should be tackled first is the most important but most difficult aspect of a succession plan: communication. That doesn’t mean casual comments about what may happen when Dad passes away. Katherine English, a partner at Pavese Law Firm in Fort Myers, says the communication must be direct.

“One mistake people make is not being frank,” English said. “They need to engage in not just communication, but transparent conversation.  Conversations where everyone politely agrees with Dad’s wishes won’t work. Realistic planning requires that we overcome our childhood training where we don’t talk about money, express negative emotions or bring up troublesome topics.”

English should know. Her father is former FFVA Chairman Hugh English, whose operation in Alva dates to the 1800s. “We continue to farm the same piece of property that my great-grandfather homesteaded. I give credit for the handing down of the farm intact to my grandfather’s generation.  After a lengthy discussion, his brothers and sister gave him their interests in return for his agreement to take on the debt associated with the farm and provide the needed care for their very elderly parents,” English said.

Although English primarily handles environmental permitting and related issues, her longtime clients depend on her as a general counsel and come to her with questions about succession, knowing that she has a firsthand understanding of those issues.

“People have this romantic idea that you just go from generation to generation to generation,” English said. “It’s a wonderful idea, but it’s not a given. You have to think about what’s fair and appropriate based on everyone’s wishes and capabilities.”

English said farming families should begin discussions long before decisions need to be made. She advises sitting down with siblings, cousins and anyone else who is part of the family group, with a list of questions. Topping the list is whether family members are actually interested in continuing the farming operation. If so, determinations need to be made as to level of involvement and corresponding compensation. Who is capable of what and how well do the family members get along with each other? Would they be able to come up with a harmonious arrangement?

Tony DiMare presented Hugh English, Katherine English's father, with FFVA's Distinguished Service Award in 2006.

English’s main point is that a family should never make assumptions. Each person’s wishes should be made clear. “For example, if one member of the family says, ‘I love you guys, but I don’t want to have anything to do with you from a business perspective,’ then what they’ve just told you is you need to figure out a way to capitalize a buyout,” she said. “And sometimes there are family members who are interested in running the business who, frankly, are not competent to operate it. Those are discussions that are absolutely necessary. They have to be gentle and loving, but they have to be direct. If you don’t have those discussions, all the things that you do later from a tax preparation perspective or a business-oriented perspective are doomed,” English said. “You end up with a splintering of the asset. You end up with a very harsh feelings and segments of the family who are alienated from other segments. These are things that carry on to the second and third generation. It is frightening and painful and a challenge. It can all be avoided if families engage in frank discussion about the economic reality of what the business is doing.”

The Farm Journal Legacy Project website  features discussion starters and plans to make a successful plan come together.

Kevin Spafford of the Legacy Project agrees that frank discussion must be handled at the family-only level before additional details requiring a professional are addressed.

“Many professional advisors are not comfortable in the planning process,” he said. “It’s too emotional. It may take a turn they’re not prepared to handle, and they may be asked to do something beyond their level of experience or expertise,” he said. “So they skip the discussion and go straight to recommending options that may or may not address the needs of the family. At this point, more often than not, the family will quit the process because it doesn’t address their goals and needs.”

For those family members who do decide to work together, Legacy Project suggests establishing a family employment policy to standardize requirements and expectations for all involved. Considerations such as minimum levels of education required and specific experiences or achievements expected would be spelled out in a business-like format.

“You can’t simply say it’s dad’s or mom’s responsibility to have the succession conversation,” English said. “If they’re not willing to get things rolling, you need to have a conversation with your siblings and your cousins and raise the question of, ‘Have you thought about this?’ or ‘What do you want to do here?’ ”

“This is one of those things that, in an ideal world, would be a matter of discussion literally from the cradle. Then you can think about if you’re going to buy out certain family members in the event of a death, and if so, how are you going to pay for it? Are they willing to sell? Do they want cash or do they want land?” said English. “Those are the decisions that ultimately drive questions such as how much insurance do we need? How much tax planning do we need to do?  What kind of entities do we need to have on a going-forward basis? Do we want to keep the business and the real estate in the same business entity because everybody is going to participate in everything, or do we want to have a real estate interest and lease the land to the operational entity that will be controlled by one or two people?

“You have to think about what’s fair and appropriate,” English said. “Especially when you have one person who is committed to maintaining the farm and everyone else is kind of willing to go along for the ride. You have to provide a reasonable living for the one who is taking those tasks on separate from their role as a shareholder,” she said. “There’s no harder work than working with your family. It’s very rewarding, but there’s no harder work.”

Katherine English may be reached at 239.336.6249 or via email at katherineenglish@paveselaw.com.

Comments are closed.