Notes From Nelson

Transferring the Farm or Ranch to the Next Generation

During tax prep time, discussions about transferring the farm or ranch sometimes arise. This is an important topic, and one that is never too early to consider.

Transferring your farm or ranch to the next generation can be a complex web of economic, legal, and family social decisions. Transfer planning includes the legal and economic decisions involved in turning over the ownership of the business, land, and other property to the next generation. Succession planning includes the family social decisions involved in managing the value and role conflicts that normally arise when families discuss the transfer of farm/ranch business, land, and other property to the next generation. This can be a very complex task that requires advance planning to help make the transition go smoothly with a minimum of problems and conflicts.

Too often taxes and legal decisions become the focus of attention while the family's social decisions about succession planning are ignored. Other times individuals assume that any problems, disagreements, or differences among family members regarding succession will be worked out when the legal and tax processes are in order.

Serious problems can arise for both the younger and older generations if the transfer and succession processes never begin. Often families avoid planning because they do not want to deal with the conflict that arises because of the differences among members regarding goals, values and perceptions of fairness and equity. The whole planning process is often avoided because the younger generation does not want the older generation to perceive them as being overly interested in their inheritances. Or, when the older generations bring up the topic, younger generations may not be responsive because they do not want to think about their parents or grandparents dying.

Families that have been through the transfer and succession processes suggest that first, issues need to be decided at an individual level. Next, these issues need to be discussed at the couple level. Finally a discussion needs to be held at the family level for each unit in each generation. If this is accomplished before a discussion at the business level, negotiations often proceed more smoothly – although not necessarily without times of tension or value and role conflict. The processes are more effective when all parties who could be involved in the transfer have an opportunity to identify and express their needs.

Members of the older generation will still make the final decision, but without hearing the needs and concerns of the other family members, they may make assumptions that are not necessarily true. And, at the same time, members of the younger generation will realize that their needs are being acknowledged and considered by the older generation.

A variety of estate planning and property transfer publications are available at the Extension Office as well as on the web at http://www.montana.edu/estateplanning.