Leaving a legacy Leaving a legacy

Building a dairy operation takes a lifetime; planning for its future can guarantee success for the next generation
May 1, 2011

When David Gruenbaum’s ancestors started Gruenbaum Farms in Plain City, Ohio, six generations ago, it was unlikely that they ever pictured robots milking their cows.

But, 16 months ago, Gruenbaum and his father, Kenneth, installed one of the state’s first robotic milking machines on their 115-cow dairy.

“The farm has been in the family since 1864,” David says. “We’re committed to keeping it in the family, and the milkers will hopefully give the next generation a chance to move forward and keep operating.”

Keeping an operation in a family through multiple generations is not an easy task. Most operations fail during transition between one generation and the next, according to Kevin Spafford, founder of Legacy by Design, a succession planning services firm. Spafford also acts as a farm succession planning specialist for the Farm Journal Legacy Project.

“About 70 percent of farms fail in the transition from first to second generation,” he says. “Of those that make it, 90 percent will fail in the transition from second to third; then 94 percent of the meager few that survive will fail in the transition from the third to the fourth generation. A very small number of farms ever make it past the third generation.”

The most common reason operations fail to transition is simply not having a plan, Spafford says.

“Operations are getting bigger,” he says. “They require more capital, involve more land, and operate on razor-thin margins. Most families don’t have a plan, and in most cases, the next generation is not prepared to lead.”

The Gruenbaums have a formal succession plan in place. They speak often about the need to update it, but like most producers, the day-to-day activities on the farm take precedence.

“Right now, we’re working to transfer all of the equipment to my name,” David says. “My dad and I are both sole proprieters, and we have a plan set up, but we need to do more. We keep talking about it and want to do it, then you go back to the field and forget about it.”

All succession plans need to start with a conversation, says Ron Hanson, Ph.D., Neil E. Harlan Distinguished Professor of Agribusiness at the University of Nebraska.

“The first step is for the parents to sit down and work out a fair and equitable way to treat their kids,” he says. “It doesn’t have to necessarily be equal. Some kids are more involved in the farm than others, some care about the farm more than others.”

Once the parents have a plan that fulfills their wishes, it is time for a family meeting with all of the children and their spouses.

“Now is when the parents outline their wishes, this is what we want,” Hanson says. “The kids get a chance to voice their feelings, any issues or concerns they have. This is the time to talk about and deal with it now, because once that parental influence is gone, it’s much harder to deal with. I’ve seen many, many families fall apart because they didn’t have a plan in place before something happened.”

Pete Albers works in a partnership with his father, Ray, on their farm, Heritage Dairy, in Dixon, Calif. Ray is a silent partner in the dairy, which has allowed Pete some freedom in making business decisions. Pete hopes to enter a similar agreement with his sons in the future.

“He was there to help me get started, but also let me fall once in a while and learn from my own mistakes,” Pete says. “I think it’s a good situation to start in.”

Pete says he and his father have not yet spoken about a formal succession plan, but they do want to plan for the farm’s future.

“I think it’s important to have a plan for when dad wants to exit the business,” he says. “It gives me a goal to meet and a timeline to follow.”

For many families, picturing a farm without its main operator is heart-wrenching. For Claudia Allen, whose dairy has been in her family since Vermont became a state in 1791, it is picturing her farm’s past that makes it easier to think about its future.

“The women in my family have always been strong,” she says. “The men have always worked the farm as well, but they also served in the military. To think about all those wars that have taken our men away, there was always someone left on the farm to take care of it. This land has seen a lot, and it’s always been a team effort by my family to keep it going.”

Claudia and her son are in a limited partnership and have a formal succession plan in place to ensure that the farm remains in their family. Claudia simply inherited the farm from her father. She was working as a registered nurse, but returned to the farm when her father passed away.

“I remember my father didn’t have a formal estate plan,” she says. “All the money went to paying taxes. I want to make sure it’s better for my son. But, it’s never easy to come up with a succession plan.”

In a perfect world, producers would write a succession plan at the same time they are developing a business plan, Spafford says. However, that is not realistic.

“If you could unwind the clock, you’d start with a succession plan,” he says. “Your business plan would include an exit strategy; a plan for leaving the operation as an ongoing concern. Obviously, most producers are past that point.”

Dominique Hulsbosch started his farm, Hulsbosch Dairy Farm, just two and a half years ago. He says his oldest son, Wim, is interested in taking over the farm someday, but right now they are focusing on establishing the dairy.

“Right now, we’re still trying to prove ourselves,” he says. “But we want to plan for the future; that’s important. My oldest son is 20, and he’s definitely interested in the farm. He’s a cow guy. We’ve talked about it, and we’ll make a succession plan because we want him to continue on the farm.”

Simply having discussed their need to plan for the future puts the Hulsboschs one step ahead. Many farm families are naturally private people, but that attitude can be dangerous when it comes to their family’s legacy, Hanson says.

“For some parents, it’s a big secret what’s going to happen to the farm after they’re gone,” he says. “When you sit down to talk about succession planning, you’re admitting that you’re not always going to be here. That’s difficult for a lot of families.”

In 2008, Farm Journal launched the Legacy Project, a succession planning initiative designed to encourage farm families to think about their future. The project encompasses several tools for families to use when developing a succession plan, including a workbook, case studies, articles, tips, advice and workshops.

The project’s website, www.FarmJournalLegacyProject.com, offers a host of information, including some “conversation starters” that can serve as a springboard for families to begin discussing a succession plan.

“Kids love talking about the future,” Spafford says. “And many parents will be surprised what they hear from their kids once they start talking. In a recent workshop, we had two families who were concerned because they had some children who were active on the farm and others who were inactive, and the parents weren’t sure how the inactive children would react to their wishes. They were pleasantly surprised when their inactive kids told them that their first obligation should be to the operation, and not to worry about giving them anything. They just want to see the farm continue.”

For Susie Revels in Coffee Springs, Ala., her plan for the future seems simple. Her son, David, is the only one of her four children interested in taking over the farm that has been in their family since 1887. She says she and her husband plan to leave the farm to David in their will, since he is the most involved.

“It’ll pretty much fall into my hands,” David says. “My sisters don’t have anything to do with the dairy, but I started working on the dairy at an early age. It just kind of grows into you. It takes a special breed to get into the dairy business and stick with it.”

A situation as cut and dry as one heir still needs a formal plan, Spafford says.

“A lot of people think they can just put their wishes in a will and be done,” he says. “But most estate plans are set up to destroy an operation. This is not intentional, but many attorneys consider the farm just another asset; it may be split evenly among all heirs, and/or sold off to pay taxes and settlement fees.”

The Revels say they are prepared for the future and that everyone knows everyone else’s wishes. Keeping the farm in the family is everyone’s No. 1 goal, Susie says.

“I’m very proud of the fact that it’s been in our family so long,” she says. “We’ve been through a lot of hard times, and this farm has been something that has always held us together.”