Episode 12: How to Start a Succession Planning Conversation
Succession planning for farm families - It’s a process that can be complicated, emotional and just plain hard to start a conversation about.
That’s where Eric Brown comes in. Eric is a financial advisor with Legacy Capital Advisors, LLC and has been providing farmers and their families with practical, common-sense strategies to help them transition and preserve their legacies. In this episode of AgCredit Said It, Eric walks us through the biggest obstacles farm families struggle with and tips for approaching succession planning conversations.
Obstacles
It’s never the money, it’s always the people
“A lot of times everybody thinks it’s about the money,” says Eric. But he’s found that the biggest pain point in succession planning is always the people.
In many family farming situations today, one or more of the children may not be interested in coming back or carrying on the farm. Eric explains that, for example, Mom and Dad love all the kids equally and want to split assets fairly. But for the farm to have any chance at longevity and carrying on a legacy, things can’t always be equal.
Instead, determining what is equitable, not equal, will protect the interests of all sides and leave the legacy of the farm intact, and at the same time, prepared for the next generation to succeed.
Fear of the complicated
Succession planning can quickly become complicated - especially when there are multiple children or even neighboring farms involved in the transition. Yet Eric says the consequences far outweigh the lack of not having a plan in place. You may not want to broach the subject out of fear of upsetting siblings or parents, but there are tax burdens, legal liability issues and other complex costs associated with passing on farming operations and farm assets to the next generation.
“I’ve seen too many families that have been torn apart by a lack of planning and a lack of decision making,” says Eric. Succession planning is a situation that “just makes people freeze and not take action.”
Tips for Starting the Conversation
Plant the seed
“You start with your Mom,” says Eric. “Mom is the one that understands the pulse and the heartbeat of the entire family.” Simply put, Eric lightheartedly expresses it’s the easiest way to get the conservation started - by talking with Mom first and explaining the importance of having a plan.
Step into their shoes
When it comes to succession planning there’s a significant emotional component. “Most [farmers] have sacrificed blood, sweat, and real tears to get everything that they have,” says Eric. It’s important to put yourself into their shoes before starting the planning process.
Eric notes that by approaching the process from an appreciative perspective centered around gratitude, the process will be a lot easier when you’re in the mindset to focus on the right things.
Have a heart-to-heart
The next, and hardest step, is to have a real conversation.
Once you understand what keeps them up at night, what makes them worry, and what their fears are after they're gone, Eric explains that you can start the process of determining what everyone’s wants, needs and desires are while also figuring out any areas of contention.
Start by talking about what everyone is on the same page about. What do Mom and Dad want? What do they think they want? Who wants to stay involved and what does that look like? Once everyone can agree on what the end goal should be, write down any areas of disagreement and tackle those next.
Work with a trusted professional
The best way to initiate the process is to have a trusted advisor who can not only serve as a knowledgeable facilitator to a tough family conversation but also serve as a moderator to communicate how the parents are feeling and their wishes. “A lot of times, Mom and Dad, they know what they want to say and they know how they feel, but they just don’t have the words to articulate it,” says Eric.
Succession planning discussions can be extremely hard, but by starting the conversation with your family sooner rather than later, you’ll be able to develop the foundation of a plan that successfully passes on the farming operations and assets to the next generation.
Here’s a glance at this episode:
- [04:11] A solid majority of farms do not have any type of transition plan.
- [08:53] Succession planning is seeing a trend where transitions are not just happening between generations, but among the next generation of neighboring farms, too.
- [11:57] Succession planning is often less about the money and more about the people.
- [16:50] A large obstacle to succession planning is “fear of the complicated.”
- [20:55] Communication is king. Have an open dialogue about your goals.
- [24:38] The first hard step to starting a succession plan is having a conversation.
- [25:19] Work with someone you trust to help facilitate a succession planning conversation - a financial advisor, an attorney, an accountant, etc.
- [37:18] After putting a plan in place, you then have to plan and prepare for things such as retirement, long-term care, and other considerations.
- [37:34] Long-term care insurance can be a bigger detriment to the farm than death because it’s an ongoing expense.
- [39:53] Farmers often neglect to save back money for retirement on top of putting money back into the farm.
- [43:46] It’s important to take the time to review your liability insurance and farm coverages every year.
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Bios
Guest Eric Brown
Eric Brown is a financial advisor at Legacy Capital Advisors, LLC. For over 16 years, Eric has been providing farmers and small business owners with practical, common-sense strategies to grow, preserve, transition, and pass along their financial estates. Outside of work, he owns and operates his own family farm with his brother and father.
Host Brenna Finnegan
Brenna has been an account officer serving Lorain County for three years. She’s worked in the agricultural industry for over 16 years with experience in livestock production, specialty crop production, seed production and processing/distribution. She grew up on a small family farm raising row crops and cattle. She currently has her own herd of beef cattle that she breeds and sells as show stock calves for 4-H and FFA members. At AgCredit, Brenna enjoys being able to work directly with the local farmers and especially helping young farmers achieve something that they didn’t think they could.
Host Phil Young
Phil is an account officer for AgCredit serving Van Wert County. He’s been in ag lending for over three years but his agricultural background goes back much farther. He grew up on his family’s farm where his father raised a large herd of sheep. Currently, he helps with the family farm raising corn, soybeans and wheat. Phil likes working at AgCredit because he can help people achieve their dreams. Whether that is purchasing a new piece of farm ground, updating a piece of equipment, or helping a borrower understand their financials, helping his clients succeed is always his goal.
Transcription
Speaker 1 (00:02):Welcome to AgCredit Said It!, the podcast for farm newbies and seasoned professionals alike. In each episode, our hosts sit down with experts from across the agriculture industry to bring you insights, advice, and must have information on all things, rural living from farming to finances and everything in between. So let's get to it.
Brenna Finnegan (00:28):Welcome back to AgCredit Said It! Phil and Brenna are here in our Norwalk office today with another great episode for you. Today we are chatting with Eric Brown, a financial advisor with Legacy Capital Advisors, LLC, about succession planning for your farm and your operation. For over 16 years, Eric has been providing farmers and small business owners with practical, common sense strategies to grow, preserve, transition, and pass along their financial estates. He owns and operates his own family farm with his brother and his father, so he is sensitive to the financial planning and transition obstacles that face America's farm families. Welcome Eric. Thank you for joining us.
Eric Brown (01:07):Well, thank you sincerely so much for inviting me to be here. It's cool to be at AgCredit, first of all, so thank you for having me. And when I came in, I saw, "AgCredit, supporting farmers since 1916." That's legit.
Brenna Finnegan (01:24):It's a long time.
Eric Brown (01:25):I mean, that's being a trusted partner and that is definitely being... You guys are no doubt, best of breed in the lending community for farmers. I'm a client myself, a member myself, whatever you guys call them here.
Brenna Finnegan (01:37):Members. Yeah, everybody is a member.
Phil Young (01:39):Yeah.
Eric Brown (01:39):And what about that patronage refund all?
Phil Young (01:42):Right, yeah.
Brenna Finnegan (01:43):Yep.
Eric Brown (01:43):That did not suck at all. That was good. I appreciate that and you guys are awesome. So thank you, thank you, thank you for allowing me to be here today.
Brenna Finnegan (01:50):Appreciate it. So, Eric, go ahead and start just with general information about yourself. Tell us what you do, how you do it-
Eric Brown (01:58):Wait or do you want me to go ahead and just get into the real-
Phil Young (01:59):Yeah, I feel like that's appropriate. Yeah, let's do that.
Eric Brown (02:02):Yeah. I do have my spanks on today, so it's going to be great episode. We are shaped nicely for the viewing-
Phil Young (02:09):You are looking good.
Eric Brown (02:09):I do have a face for radio or a podcast with audio only. No, your description upfront is pretty good. I don't really like talking about myself much, but I do all the time anyways. Been in the financial advisory business now for put 20 years. It wasn't my first choice. As a kid, I worked for Albright Turkey Farms on State Route 61, just south of Norwalk. And Mr. Albright, if nobody knew, was a commodity speculator. So I'm a young kid. My Dad didn't think that I worked hard enough on our farm that had to work for every other farmer in the county as well.
Brenna Finnegan (02:43):Isn't that how it always goes?
Eric Brown (02:44):Yeah, so he dropped me off at the end of the driveway and said, "Go see Mr. Albright. I'm sure he's got something that you can do." So I went in and saw him and you know, this is... Let's get a date right. This is about 1981, '82, opened his office door, there's computer monitors everywhere. 1981, 1982 computer monitors everywhere, where here he's got direct connection to all the markets and all that stuff. And I'm just as a kid, my eyes are pop bottles, just blowing out of my head and I just ask what it is. And he said is, "Well, do you want to know?" And I said, "Sure." He says, "Well, let's go get you... clicked into the time clock and we'll start looking at it."
Eric Brown (03:26):So that started about the next seven years of my life. Every day when I went to work there, he would have me punch in and we would sit down and he would start my tutorial on trading commodities, and by the time I was heading to Ohio State to put in my four years there and I actually knew about as much more than the professors did that were teaching the commodity marketing classes. And in sense, it's honestly, and truly been a benefit to my family farm, and then it was a natural progression then.
Eric Brown (04:11):I got out of that business to go back to the farm and farm full-time, and then when I realized that, "Hey, I want to have a family. I want to support my family and our farm's not big enough to do that. I need to find something else." So we went and a friend came to me and says, "Well, you trade stocks and stuff on your own. Why don't you do it for other people?" and hence I got into the business. And then of course I have an affinity to farmers, being one and again, as you guys know and you guys are in the business that you are still at a solid majority of all farms do not have any type of a transition succession, any type of a plan to get the assets from A to B. What's the average age of farmer doing right now? They're not getting any younger. We go have meetings and we have our clients come into our offices and there's a lot more gray hair than colored hair when it comes in the door and that's just the way it works.
Brenna Finnegan (05:03):Or Clairol.
Eric Brown (05:04):Or... I don't know what farmer you're talking to, but…
Brenna Finnegan (05:09):I have my niece that does that for me.
Eric Brown (05:10):Oh, there you go. There you go. So the point is there's a huge need. And the nice thing is too, is originally being affiliated with Nationwide exclusively, they had what's called the Land As Your Legacy program. Land As Your Legacy as an initiative. Again, most of the board of board members of Nationwide are still active farmers and they started Land As Your Legacy as a service to their ag base. Nationwide the largest insurer of farms in the country. So they have a vested interest to making sure these farms stay in the family and they stay productive because they want to have clients.
Eric Brown (05:44):So everything just kind of fell together. I can't say it was anything smart that I did on my part. It's just like the path kind of went down a funnel and kept narrowing me down to the path I needed to walk. I'm also married to Tracy Brown, my wife, she owns an accounting firm in Norwalk Brown Crane Associates. We've owned that since our first child was born. We started Brown Crane Associates at a kitchen table with an old DOS computer and one client.
Brenna Finnegan (06:12):Yourselves?
Eric Brown (06:13):Yep. Well basically, yeah. The problem is they're deadbeats, couldn't pay, so that didn't work out so well, and now it's a thriving sizable accounting firm here in Norwalk, Ohio.
Eric Brown (06:24):Also participate in the real estate market commercial farmland, residential. So we believe in the 80 hour work week, it's how you get anything that you want in life. There is nothing that's free. So we started this path to help farmers get to where they want because they are the hardest working people that I truly know. Most of them have sacrificed blood, sweat, and real tears to get everything that they have. It wasn't by accident that they're where there are today. Managing big, big businesses.
Brenna Finnegan (06:56):Yep.
Eric Brown (06:56):Ten years ago you could manage a farm like it was a ma and pa operation. Today these are a big multimillion dollar businesses that need to have a sophistication, have experience from a marketing merchandising, risk protection. They have to wear so many hats. So if ag credit and Eric and Nationwide can partner to help them down the road a little bit, that's got to be our goal and it seems like it makes all sorts of sense.
Brenna Finnegan (07:25):So it's pretty obvious that we're going to go down this path on this podcast of succession planning. We deal with it on our side, people that pass away and we have to, "Who's going to take this over? Who's going to make payments?" all that kind of stuff. So we kind of feel the pain.
Phil Young (07:41):So, I guess the big thing, our podcast is for kind of younger borrowers, younger farmers. Obviously, we titled it Farm Succession Planning. What is farm succession planning? I guess, nuts and bolts what is it and why are we talking about it?
Eric Brown (07:56):Well, the fun part is, to take a step back briefly before I answer your question with a real long-winded answer that sounds really poetic.... Just kidding.
Phil Young (08:06):I'm excited to hear it though.
Eric Brown (08:07):Is you know now in life, as I'm getting some gray hair myself, I've been the kid in the transition process where my parents were the primary owners and I was the one working, hoping to take it over someday. And now I'm also in the position where I have a son that's coming back to the farm full time. So now the shoe has obviously went to the other foot now. So to understand the emotions, the feeling inside of your chest, that parents feel when they're in this process and what the kids feel when they're in this process, I think it's truly going to end up being a benefit long term, having been kind of wearing all the shoes so far.
Eric Brown (08:53):But succession planning. To me, that's just a fancy term for saying, "How do we get the assets, the farm, the operational business from Mom and Dad to child?" or we're in an environment now where there's a lot of children that aren't farming. We have, myself, a lot of clients where there's beautiful, successful farms. Mom and Dad have created just amazing operation and son is a doctor, daughter is a nurse or there's just nobody to take it over. So we're also seeing a trend that succession can also be not just to the next generation as a child, but to the next generation as a neighbor kid, a neighbor farm.
Eric Brown (09:33):So there's still a lot of tax consequences, there's a lot of legal liability issues, there's contracts and all this stuff to make this happen. And what we find during this "succession planning" situation is that there's just so much complexity, it just makes people freeze and not take action, not implement because again, you know the ag space, the ag community, pretty much a tight-knit group, they're so salt of the earth, very solid fundamentally, but when something doesn't feel right, sound right, or "I don't understand it," they're going to push pause every time.
Eric Brown (10:12):Every time, yeah. So I guess the whole thing about succession planning, isn't just talking about it, it's not listening to a podcast about it, it's not going to a meeting about it, reading article about it, it's doing something. It's taking action, pen to paper, moving assets, putting a plan together and implementing. Talking about it doesn't do anything anymore and let's take a look around. Did anybody watch the news last night, tonight?
Brenna Finnegan (10:40):Yep. Yes, we did.
Eric Brown (10:42):We're living in a crazy world, right? Things are insane right now. So do you think there's going to be a bigger consequence to not planning, to not having the Is dotted, the Ts cross and taking action today than there was just yesterday? There's never been a time in my career in my life that the stakes have ever been higher. So, I have to look at myself in the mirror and you guys need to look at yourselves in the mirror, in that we have to figure out how to get farmers, the ag community out of their own way, so they can make a good business decision for them and their families. That's our job.
Brenna Finnegan (11:25):That should be a billboard.
Phil Young (11:28):The quote I was rattling around in my head when you were saying that, "It's the pain of discipline or the pain of regret," and you don't really want to have the pain of regret when something happens and you don't have a good system set up or a good succession stuff set up for your farm. So, yeah.
Eric Brown (11:43):Amen.
Phil Young (11:43):Yeah.
Brenna Finnegan (11:45):So obviously right there, you've suggested a little bit. What are the biggest struggles and challenges that you see with succession planning? I'm assuming it's people getting in their own way kind of thing.
Eric Brown (11:57):Well, a lot of times everybody thinks it's about the money because we have these again, multimillion dollar operations that may have just been a million dollar operation a few years ago. So it's all about the money. I have found now being involved in ton and ton and ton and ton of these plans that the pinch point is always people. It's never the money, it's always the people.
Eric Brown (12:22):I'll give you an example. We have the situation we just talked about, maybe one child farms and the other three don't. Mom and Dad love all the kid equally, but guess what? For that farm to have any chance of longevity and carrying on Mom and Dad's legacy things can't always be "equal."
Eric Brown (12:45):So we try to term it, the way that we look at it is it has to be equitable. Equitable, not equal, and that means that everybody's got a little different value proposition that they're bringing to the table with the continuing legacy of the farm. So if the number one goal of Mom and Dad is to make sure the farm that they blood, sweat and teared created is ongoing, moving forward. If that's goal number one, we have to determine what is equitable. Being equal will screw everything up. So that's one people issue.
Brenna Finnegan (13:22):Well, the one thing I always think of is that when people say equal, they also think fair.
Eric Brown (13:27):Yes.
Brenna Finnegan (13:27):And in this type of situation, I don't think equal is fair or vice versa.
Eric Brown (13:35):Yep.
Brenna Finnegan (13:35):You got to draw the line somewhere as to who gets what or all that kind of stuff. So, and as he's talking, I'm sitting here screaming like, "Oh my gosh, Dad , listen to this, listen to this."
Eric Brown (13:47):I think we all could know of somebody that probably should be listening. Now again, when we talk about people, we also can talk about Mom and Dad , grandpa, grandma, whoever that generation above is. And we have to, as the next generation or the younger generation, has to put themselves in Mom and Dad's shoes, and you have to understand what keeps them up at night. What makes them worry? What is their fear after they're gone? "Well, I give it all to Johnny, and day after we draw our last breath, he sells it all," and he got all the money and the other kids didn't. I've heard that a thousand times. Or "We're going to go to our grave with three of our kids, hating us for the rest of eternity." My question always is, "Well, is it better if they hate you for eternity or they don't show up at Christmas and Thanksgiving because they hate their brother or their sister?" But more people issues. It's ridiculous.
Eric Brown (14:44):I was involved with $11 million total operation in Southeastern Ohio. We sat down and everybody's talking it out. The two brothers that farm are there, Dad and Mom are there, I'm there, and we're going down through assets and stuff like that. Everything's all hunky dory, all perfect. So we get down through, I'm going to call it $10 million, $999,900 everybody agreed on, like seriously, like an hour. Grandpa's lever action Old Henry Octagon Barrel 30-30 comes up and I was in between two brothers that wanted to kill each other over that gun. So millions of dollars, no problem. That one thing, the thing that nobody would've thought about. Mom and Dad always think, "Well, I know what the boys are going to fight about or what they..."
Eric Brown (15:39):Nope. This one thing. So after about 10 minutes of this and we sat everybody back down again, I'm like... get on my phone, I find another one and I buy it. And then I tell Mom and Dad , "You're going to write me a check for..." Now they each have an Octagon Barrel Old Henry, same age, same model, we'll mix them up in the back room, so they don't know which one was Grandpa's and we'll hand them each one, and that's how we dealt with it.
Brenna Finnegan (16:06):That's called problem solving right there.
Eric Brown (16:08):Exactly and then the last one is there's a lot of families... and this is what's important to me of this. I've seen too many families that have been torn apart by a lack of planning and a lack of decision making by the higher generation, and a lot of families mistakenly think that, "Hey, all the kids come over at Christmas. All the kids come over... Everybody, their kids play with their kids. They were kids, watch the other one's kids. It's all good," but throw some money in between with no determination of how it should go and see how it ends up.
Brenna Finnegan (16:43):Thanksgiving tastes a little different when money is involved-
Eric Brown (16:46):Oh, for sure.
Brenna Finnegan (16:47):... or borrowed or shared or split or whatever.
Eric Brown (16:50):Yep. So again, that was a long answer to your short question, but one of the big obstacles is the people. The second one is, again, we kind of mentioned it earlier, is the fear of the complicated. Nobody wants to get themselves in a situation, A, it costs... You got to spend a little bit of money to get this done right. Somebody that has a ton of properties, and we're going to put them into a limited liability company or we're going to title them to our trust, you start doing title work on 25 properties, you're going to have a little bit of a bill there. So they don't want to spend all this money and then find out that it was the wrong way.
Eric Brown (17:27):Every family that you sit down with has, "The trust didn't work," story. "My neighbor did this," story. Everybody's heard of an instance where somebody went ahead and moved forward and it was the wrong decision. So you're fighting more of an ambivalence type of a situation than you are of... They're just like, "If I do nothing, I can't be wrong.” And then you have to paint out the consequences of what that looks like if they don't.
Brenna Finnegan (17:58):Okay. So what are some of those consequences if nothing is done?
Eric Brown (18:01):Well, first of all, obviously, a lot of the real estate that we have is owned in one farmer's name, the husband's or it's held in joint tenants with rights of survivorship. Well, what happens when both parties die? This is a quiz. Anybody know the answer?
Eric Brown (18:18):It goes through probate, and again, back when we had a $100,000 of real estate, and it would cost us, $700 bucks or $1,000 or whatever, to get through probate, no big deal. We're talking about farms that have $3, $4, $5 million and look at 6, 7, 8% probate type expenses, that becomes a big number. All of a sudden your clients are coming to see you. And they're saying, "I need like $400 to get my free farm."
Brenna Finnegan (18:46):Yeah.
Eric Brown (18:48):"Can I have $400,000 because I need to get my..." So a little bit of time title work, a little bit of planning, saves a whole bunch of money when it comes to probate. We've even seen it where clients have set up an LLC, have a trust and then because they didn't want to spend the money at the time, didn't have the titles changed to the real estate.
Eric Brown (19:09):So what does the law, the government, the IRS, and all that say in that situation? You may have wanted it to be in your LLC, you may have desired it to be in your trust. It ain't in there. So guess what? You went through all the pain in the butt process, you've paid the money, but yet you didn't fully execute and you're still going to have the same penalty. So the devil is in the details here, and that's the part that again, is an obstacle to implementation by most farms that don't have a plan in place.
Brian Ricker (19:47):Brian Ricker here, President and CEO of AgCredit. I'm happy to announce through our patronage refund program we are returning $31 million to our member borrowers in 2022. This means that eligible borrowers are receiving back 40% of their interest that accrued in 2021. This is just one of the many benefits of being a member borrower of a cooperative like AgCredit. To learn more, visit agcredit.net. It pays to be a member.
Phil Young (20:19):You kind of touched on it from the get go, I guess. You talked about the people side of stuff. I guess people that I talked to, that's probably almost the number one nervousness that they have is making a sibling upset or making their parents upset. Do you have any, I guess, pro tips for somebody, maybe it's a parent or maybe it's a child that wants to maybe broach this subject and they've never talked about it and they're just like, "Boy, I really should bring this up, but I don't know how to do it and I don't know how to do it well, and I don't want this to backfire, and then we don't talk about it for another 10 years." Do you have any good tips on that?
Eric Brown (20:55):Well, number one, we all know communication is king. It's not saying that we need to put all of our business out there for our children. They don't necessarily need to know everything about us, but at the same time, having an open dialogue about what you're looking at, things you're thinking about, problems you're having and coming to a resolution, having communication. Because if your kids are using their imagination, trying to think what you're thinking, do you think it's going to be a better situation or worse? Going to be worse.
Eric Brown (21:29):So no matter what, smart to talk it out a hundred percent and here's the thing. This is going to be a little cold shower for everybody, but you can't plan, create a legal document, talk and make somebody a good human. Let's get it straight. Some of our kids are not good humans, right? Right?
Brenna Finnegan (21:51):It's so true.
Eric Brown (21:52):I'm sorry. It's the truth.
Brenna Finnegan (21:53):Yep.
Eric Brown (21:54):So no matter what, you can't document your way out of somebody being a jerk, somebody being greedy, somebody being selfish, somebody not seeing the big picture. So there's some times we have to accept, we cannot let it keep us from acting because it's too punitive to not act, we have to. So we just sometimes have to accept there may not be a "peaceful resolution" here, but the cost to Mom and Dad not making this decision, not making it black and white, is again, there's a huge penalty for a long period of time.
Eric Brown (22:29):So communicate, you got to accept that sometimes your kid is a jerk. Boy, this is going to be a high... the viewer and the listenership here is going to be really excited about this episode and then the third thing is honestly and truly Mom and Dad also have to realize they can't read their kid's mind. There's a lot of times Mom and Dad say, "Well, I know Susie's not interested." Do you? Or sometimes, "I know Jake's going to be here. Jake, he's all over it."
Eric Brown (23:01):We have one family I just met with yesterday, this is no lie, down in Southwestern, Ohio and Jake, name is changed to protect the innocent, is the one that's helping all the time. Assumed Jake is going to be the successor. Mom and Dad ask Jake when he wanted to start this process. He's "Oh, I don't want to own it." So for two or three years they have been planning without communicating, without asking the simplest of question, "This is how it's going to go." It's not going that way.
Brenna Finnegan (23:37):So how do you recommend sitting down? I know that you we've talked many times about this and you in fact, sat down with my parents and it was my goal to have them sit with you individually, you get their idea as to what they wanted to do, which there's not a ton to get rid of or anything, but it's just five-
Eric Brown (24:01):It's not the Ponderosa?
Brenna Finnegan (24:03):No, not at all. But five strong willed, hardheaded kids that all have some form of a stake of some way, shape or form within what they have. So sitting down with them, talking with them, going through it, learning it with them. Then how do you go to the next step, like bring the kids in and their spouses or however the step would be. What do you recommend as far as that type of process, to even start the communication? First of all, you have to be willing to sit out and do it in the first place. So that's probably hard step number one.
Eric Brown (24:38):Yes. It's pretty simple actually. You just pull up a chair and you sit down and you start talking to people. I'm not being simplistic, but honestly and truly we make it into this big thing. It is that simple, but it's not easy.
Eric Brown (24:53):Makes sense?
Eric Brown (24:54):So definitely have those conversations. That's one of the things too, that I think Nationwide's Land As Your Legacy program does when it inserts an uninterested advisor. They're Switzerland, it's not their assets, they don't care. They just want it to be what the wishes are of the people that own the assets because they're the ones whose stuff it is, that you can inject that Switzerland into the conversation.
Eric Brown (25:19):I've been in a ton, a ton of family meetings where I can be a moderator, and a lot of times, Mom and Dad, they know what they want to say, they know how they feel, but they just don't have the words for it. That communication, that articulation... My Dad to sit down and tell you how he feels... First of all, that ain't never happening, and second of all, I can't even... It's no fault, that's just that generation. So to be an interpreter and to be able to move back and forth and keep continually to reminding of the common ground that exist.
Eric Brown (26:01):I'm going to throw out and again, we're going to use Brenna as an example, but we're going to change the names to protect the innocent, and these numbers do not reflect your farm, is that I'm guessing that your family members, if we sat down and we honestly talked, probably about 80% of the stuff we would agree on.
Brenna Finnegan (26:18):Probably.
Eric Brown (26:19):What's important, what Mom and Dad would want and all this stuff would come back to where there's roughly 80% agreeable stuff. And there's 20% stuff we have to work through, but during that process, the more we can go back and address the 80% of the stuff that we're on the same team here, we get it, and now we have to figure out how to walk that tight rope in between everybody's wants and needs and desires, to finish out the last 20. When we just focus on the 20, it seems humongous, the Grand Canyon split between family members.
Brenna Finnegan (26:57):So do you start there then? Do you start with that 20%?
Eric Brown (27:00):Honestly, if I have the family into my office, we have a big, huge whiteboard obviously, just like everybody else does. You do it, you have it here. And we just write down some things. Everybody says, "Okay, so what's an area of contention?" Somebody will say it and I'll put it up in the corner and they'll say something else, put it up in the corner.
Brenna Finnegan (27:15):How many people have said the whole thing?
Eric Brown (27:19):To be perfectly honest, that's very rare and that kind of goes back the good human piece. There's families where there's kids that come that are just... evil is the wrong word, but they're just never going to, no matter what you did, they're never... "You have everything." "Ah, come on. When you going to... You should have gave it to me yesterday, not today." They're never going to be happy.
Eric Brown (27:43):But a good is to take all the stuff that there is that's disagreed and put it up on one side And then usually if we talk about the things, if it's moderated, all the things we agree on and we just get, "These are things up here, we're going to come back to them. let's start talking about what we're on the same page for. What does Mom and Dad want? What do you think they want?"
Brenna Finnegan (28:01):How many times does that lead to them going over to that other side and it actually turns out that they agree?
Eric Brown (28:06):Oh, for sure.
Speaker 6 (28:08):Almost greases the skids for the contentious things.
Eric Brown (28:11):It exactly does.
Eric Brown (28:12):Yes, exactly does. It minimizes, makes it look small where the disagreements are and it makes it look big where the common ground is. And if everybody can agree on what the end goal should be, Mom and Dad's wishes should be carried out. It's their stuff. That's the foundation to everything. You didn't earn the money to pay for the ground. I don't care that you helped out bail some hay and stuff once in a while, I'm just saying, this is Mom and Dad's stuff.
Brenna Finnegan (28:40):Wasn't that the cost of the food like that they fed you throughout your entire life is get out there and do the chores?
Phil Young (28:46):Yeah. Right.
Eric Brown (28:47):Yeah, "We put the pool in so after you bail, you can cool off." That was the payoff.
Phil Young (28:49):Yes.
Brenna Finnegan (28:53):Yes, that is exactly true. What advice do you have for the younger generation in approaching the conversation?
Eric Brown (29:03):What's funny is, is a lot of times and especially here in the last, I would say, 18 to 24 months, the initial call to me has been from the younger generation, "I keep trying to have Mom and Dad talk about this. I keep trying to do this or to do that, get them to talk. They won't talk. They won't say." And again, we used to have the same conversation is, "You have to understand where they're coming from. I'm not defending them. I'm just telling you're in a negotiation now, you're trying to persuade. So you have to understand exactly where Mom and Dad is coming from."
Eric Brown (29:42):You want to know where to start? You want a secret? This is a million dollar idea here for a young kid wanting to figure out how to talk about this. You start with your Mom. Start with Mom. Mom is the one that understands the pulse and the heartbeat of the entire family. Everybody talks to Mom. She is Switzerland. She understands automatically what everybody's thinking.
Eric Brown (30:10):So talking to Mom first, figuring out and telling Mom the importance of all the things we just talked about, probate, liability issues, legal stuff, kids not getting along, fighting after you're gone. Start talking about those things, "We need to do something," and again, it may not necessarily benefit me in the end. I may be a loser in the end, but I think everybody deserves to know and be part of this solution. "I want to help make it happen, but I've tried talking to Dad about it and you know how Dad is. He's not chatting about it." So start with Mom, that's number one.
Eric Brown (30:50):And then I just keep bringing it up. And the way I look at it is keep showing the loss. "You know, Dad, right now, all the properties are owned and your and Mom's name. You know what happens if something happens to you guys? Have you seen your driving? 35 miles an hour and left to center, somebody's going to hit you because they're driving 80 and trying to do it right." No, "If something happens to you, here's how much it's going to cost. We have 1000 acres. We're talking maybe $600,000, $700,000 it's going to cost. Where's that money coming from, Dad? Where's that money coming from? Where's our liquid assets that are going to pay for this $600,000, $700,000? It doesn't exist.
Brenna Finnegan (31:31):"What piece of land do you like the least that you want to sell to cover all this?"
Eric Brown (31:38):Yes, exactly, right. Can I tell a funny story?
Brenna Finnegan (31:38):Yeah, go ahead.
Phil Young (31:39):Yes, please.
Eric Brown (31:39):This is an early, before I was way more professional than I'm not now. Think about that one for a minute.
Phil Young (31:46):Yeah, right.
Eric Brown (31:48):I honestly was having trouble in a situation, getting a farmer to act and he was a little gruff and a little aggressive. So I finally had it, I said, "I'm going to go meet with him one more time. This is the last time and I'm going nuclear." So I went and I got and went to the FSA office, printed off a couple of his maps and took them to the house. And then I set a pair of scissors on top of him and slid them across the table. I said, "Could you just take a minute, before we get started, and cut out the farm that you're going to have XYZ farm farm from now on." And I already knew the farm that was competitor that they didn't like and, "Because if we don't do something, that's the farm we're going to sell, the kids are going to sell to make sure they get the farm. Is that what you want? XYZ farm going back and forth while you're in the dirt on the other side of the grass?"
Brenna Finnegan (32:45):Talk about reality check.
Phil Young (32:46):Yeah. I'm assuming it worked?
Eric Brown (32:48):It worked.
Phil Young (32:48):Yeah. Yeah.
Brenna Finnegan (32:53):I feel like I should go print off our family maps.
Eric Brown (32:58):And again, I'm not saying that's appropriate and I'm not saying you should go nuclear in these situations. Usually diplomacy is the smarter route, but sometimes every single person, all of us, we know when we're... You guys are in a sales business now too. You guys now have to go out and get clients, correct?
Phil Young (33:14):Yeah.
Eric Brown (33:15):So when we do that, we're in a sales position. So we want to put ourselves in the best chance to get the people out of their way to make a good business decision and everybody buys differently. Everybody's got different hot buttons. Well, this guy, he needed nuclear and again, one of my best clients ever since. We talk great, he'll text a joke or text a picture that he got the tractor stuck or he ran corn over the edge of the semi. He's just a different guy now. We had to figure out that combination to open his safe.
Phil Young (33:50):Yeah. That's a good way to put it. Yeah.
Brenna Finnegan (33:52):Well, when something is at risk and they don't want to see it gone, whether they're on the top side of the dirt or the bottom side of the dirt, they still don't want to see it gone.
Eric Brown (34:00):Because the coffin is never big enough to put it all in to take it with them.
Phil Young (34:05):Right. Yeah.
Brenna Finnegan (34:05):Well, there's that country song. You Can't Take It With... what's it? I don't even know what it's called-
Phil Young (34:09):I can't remember what it is, yeah.
Brenna Finnegan (34:10):... but along the lines of you can't take it with you, so you might as well enjoy it while you're here kind of thing.
Eric Brown (34:14):Exactly.
Brenna Finnegan (34:15):So it makes sense.
Phil Young (34:19):Yeah. Any other things maybe we haven't talked about or that you see are common things in your line of work that you feel like you should share with people?
Eric Brown (34:26):Well, I think number one, it comes down to you have to act, first of all. And secondly, the only thing that's going to get somebody act is they have to work with somebody they trust, whether it's an attorney, their accountant helps initiate stuff, their loan officer at AgCredit, whether it's Eric, whoever it is, they have to have somebody to help be their trusted advisor, be the quarterback of their situation, what all they need to do, their process to get them to move forward.
Eric Brown (34:56):If you don't trust somebody... I tell people all the time, "If I'm not your guy find somebody that is because it's so important you get this done. We have to do it." So number one, you have to get somebody you trust. And again, if we got time in here in a few minutes, we'll go through a few things that I think farmers can do to put some money to their bottom line this year when everything sucks. Is that cool?
Phil Young (35:16):Yeah. That's great. Yeah.
Brenna Finnegan (35:17):Yeah.
Eric Brown (35:18):So we'll get back to some advice that... and number two is we have to all look around and be appreciative of what we've been blessed with. Most of us have been blessed with an amazing family. Now we might want to kill them once in a while, and they might upset us once in a while, but we've all been blessed.
Eric Brown (35:40):So in the end, before we start any of this process, we have to come into that process centered around gratitude and appreciation of what we have, the people we have, because I don't know if anybody else witnesses how things are out in the real world, there's not a lot of good people to replace the family with to help you run your farm, to help you live your life, to take care of you when you can't take care of yourself anymore.
Eric Brown (36:06):Those are all things that it's just so important that if you come into it with the right mindset and you're focusing on the right things, this process gets a lot easier. Then it's just about details at that point. We've taken a lot of the negative emotion and stuff out of it. I've been to a lot of family farms too, where just having a vent session, a session where all the dirty crap from the last 20 years can just be spewed because it's been so long... Heck, I've had times where we've sat down and I'm like, "Are you guys not talking?" "No." "Well, why is that?" The one... Well, it was it brother and sister. The sister says, "You know, I don't even remember." So we get all into our habits and in the world, everything so fast now, so chaotic, everything's so disjointed, there's no peace. So we all just need to... Again, gratefulness brings peace.
Brenna Finnegan (37:08):Do you have a boxing ring somewhere because like I could see some-
Eric Brown (37:11):Everybody's got a backyard. What are you talking? Everybody's got a backyard.
Brenna Finnegan (37:13):Oh, that's true. It's all happened before.
Eric Brown (37:18):So those things are important. And then I think the last thing that I'll say when it comes to other things to consider, I think if there's some obstacles to where we got the people right, we've got a plan that makes sense and now we have to figure out how to monetize it, and how to fund it, how to make it cash flow.
Eric Brown (37:34):Some big contributing factors to making things difficult is long term care insurance for the older generation. That's a big one. Honestly and truly, the long term care piece of this is a bigger detriment to the farm long term than death is because that's an ongoing expense that keeps hitting you, hitting you, hitting you, and depending on the economic structure of the farm, how much money there is, how much other assets besides farm assets there are, the farm may have to start carrying that, all while the next generation is trying to feed his family or her family and kids and put him through college and all that off the same operation.
Brenna Finnegan (38:14):So when you've had somebody that's had the advice of, "It's not worth it at this point to even obtain that long term care insurance policy," what do you say?
Eric Brown (38:24):Well, I'm going to phrase that as it all depends. There may be somebody whose health issues and they're already 70, that may preclude them from being able to find something economical that they can cash flow, that doesn't ruin their monthly bills, their monthly cash flow. But on the other hand, is the cost is so much now, I think we're up to about $67,000 in the state of Ohio now is the average for full-time care and that's not even acute care, that's just full-time care. That's a chunk.
Brenna Finnegan (39:01):I just had a friend and they just got the... I guess you can call it the quote for what it's going to be for when a parent moves in and it's $10,000 a month.
Eric Brown (39:11):Yep, and if there's a need for acute care, you're up over a hundred, for sure, like you're saying, 100%. So at that point, if you can still be insured, I'm not seeing a lot of $67,000 premium notices for long term care insurance and we'll stick a little caveat in here. There's tons of ways or lots of ways or more than one way to go out and get long term care taken care of and that's something that this is probably not the time and the place on this podcast to talk about that, but if you have a question, reach out to me, for sure after this, I'm sure we'll have contact information in the notes and stuff like that. So make sure you reach out and let us know, but it is the number one thing, honestly and truly, that's not prepared for.
Eric Brown (39:53):The second thing is farmers, in general, they put all their money back into the farm and we made a big profit this year, a nice profit and guess what? We're buying new paint, which I know you guys like. So I don't want to rain on your business here, but it happens. We have to get better at teaching our producers, our farmers, to make sure every year they're pulling out money and say saving for their own retirement on top of putting the money back into the farm.
Eric Brown (40:22):It doesn't have to be a gazillion dollars out there in a retirement account, but having something out there to help subsidize so they can charge maybe a little less than market based land rents to their children who take the farm over so they can have their health, welfare, and well being taken care of. Any money that we have in life insurance, long-term care coverage, and retirement plans help make the plan for the farm, greases the skids, as you said, makes it work. So that is definitely something we have to work on.
Phil Young (40:53):Nice. Yeah and you wanted to chat a little bit more about-
Eric Brown (40:55):Oh, you want to make some money?
Phil Young (40:56):Yeah. Let's let's do it-
Eric Brown (40:57):We got make some money for some time today?
Phil Young (40:58):Let's chat about that.
Brenna Finnegan (40:58):Yeah.
Brenna Finnegan (41:00):We can these days with inputs
Eric Brown (41:04):Well, that's the thing. We mentioned earlier, it's a crazy world out there, so there's little things. We don't want to tempt fate, right? So I think rule number one... First of all, I do not sell insurance at all. So if you need car insurance or tractor insurance or farm liability or farm model, I'm not your guy. I don't sell it, but I am going to say this. Every person listening to this podcast needs to go to their filing cabinet, pull out the policy that they have on their insurance, farm liability, farm auto, let's look at them first. Now they're going to have to open the envelope because they never opened it when they got it and pull it out and most policies have a base of $1 million of liability coverage and that's it. How many farms do you have for clients that have only a million dollars of assets? So who's protecting the assets above the $1 million?
Brenna Finnegan (42:03):Nobody
Eric Brown (42:04):Self-insured, baby.
Brenna Finnegan (42:06):Well, that's true.
Eric Brown (42:06):Right? So take a look at that. That base policy is the most expensive insurance you're going to buy. You can go out and get it an umbrella policy that goes over top of that farm auto and that farm liability. And you can get two, three, four, how much is economically required to get you to the point where you are insured and you're not self-insured because the thing that the last two years have shown us is that lightning strike event that once in a lifetime can happen and it's happening a lot more frequently than it used to.
Brenna Finnegan (42:43):Murphy's Law, isn't that what that is?
Eric Brown (42:45):That dude lives at my house. If I ever find him, if I ever find that guy, I'm going to... Okay, I got to stop. This is a G-rated podcast. So that's number one. That is a money maker. Now, again, there's farms in the state of Ohio in the last 30 days that had a significant fire and because how much insurance do farmers like to pay for?
Brenna Finnegan (43:08):None.
Eric Brown (43:09):All of it. Right? So it's for sure, they underinsured, so now it's time we got to replace all the stuff that we had. If we have replacement on our barn, for example, and we only had it insured at 70%, now building costs are up 50, 75. How big is the gap between what our barn was worth and what it's going to cost to replace it after a fire? How about tools?
Brenna Finnegan (43:39):Your 60 by 100 just became a 30 by 50 real quick.
Phil Young (43:43):Yeah, right, yeah.
Eric Brown (43:44):It's a Florida beach house now.
Phil Young (43:45):Yeah.
Eric Brown (43:46):Yeah, it's a Florida beach house, that's what we could buy with the money that it would cost to replace it. So it's so important to sit down, review your liability insurance, your farm coverages every single year. Carriers are notorious for you take something off that you sold, you tell them, they never do it, so you're still paying insurance on it or you send something in and say, "Hey, we bought this," and somehow it's not on your policy. That is all a risk to you in the event that something bad happens, that lightning strike event happens. And we talked about those are happening now.
Eric Brown (44:22):So in a year of chaos, a year of no margin and yeah, I did say, no margin in growing crops and such in the area, we cannot afford a loss. We are in that timeframe where we cannot accept additional risks that we can control, that's in our control. Then the second thing is the highest chance we have of being sued is with our personal auto, is driving. Statistically speaking, the biggest chance for us to be sued? In our personal auto. Pull out your auto policy. Open the envelope again, pull it out and you're going to find you have somewhere between $50,000 and $100,000 of liability.
Brenna Finnegan (45:07):Hold on, I think I have it in my purse. Yeah.
Eric Brown (45:09):So 50,000 and $100,000. If you kill somebody with your car, is $50,000 and $100,000 going to get it done? Now your home is one of the least likely places to be sued for liability. Still base policy, $100,000, $200,000. So get a personal umbrella policy, pennies on the dollar that make sure that all the assets that are at risk for that are covered and you're not self-insuring. These are million dollar tips. Million dollar tips, and they're just sitting there waiting for you, not to act on them. They're waiting and the minute that you don't, you're going to get punished for it, period.
Brenna Finnegan (45:53):By not doing it, you're betting that it won't happen while the insurances company is betting that it will happen.
Eric Brown (45:59):Yep. And in that case where, where you're self-insuring 70% of your assets, the insurance company in the lawsuit's going to write their check and go away, and now you're left to carry the rest, and all of a sudden you're buying Joe Schmo attorney from downtown who got somebody off in a DUI, got some child support for one, and now he's fighting these big companies that are suing him. Yeah. That's not going to end well for anybody. So there is real money ideas that if they're acted on, will save people, thousands. In our farming business now, it's tens of thousands, perhaps hundreds of thousands.
Brenna Finnegan (46:40):So there's not enough insurance out there.
Eric Brown (46:42):Mainly, yep. And, and I would say that, "Oh, no, people are learn-... No, almost every time when we do a Land As Your Legacy case and we're collecting the data to help put a case together and we look at everything, the financial viability of the farm, the liability risk, where the holes are, because again, what good does it do to set stuff up if they're just going to screw it up and lose it anyways, because it's not handled properly? So we go through all that and 9 out of 10, that is what we see.
Phil Young (47:10):That's a great tip.
Eric Brown (47:10):Yeah.
Phil Young (47:10):Great tip.
Brenna Finnegan (47:11):So since you're talking about insurance and succession planning... life insurance. How do you determine what coverage works in order... Because I think some people think like, "Well I'll just cover it and it'll pay for the farm. Well, it's got to also sustain itself for a little bit too until the next generation could potentially fully handle the financial responsibility or whatever. So what do you typically recommend for life insurance policies?
Eric Brown (47:39):So what you're saying, you're going to have me back for a second podcast.
Brenna Finnegan (47:43):Well, we could. We could do that.
Phil Young (47:45):That's a whole one by itself.
Brenna Finnegan (47:45):... hopefully we'll have season 2.
Eric Brown (47:46):Honestly, and truly there's enough variability there in what a recommendation should be, that's going to be highly individualized on the case. And a lot of it goes back to not only what product to use term insurance, permanent insurance, whatever, it's also about insurability. When's the best time to buy in life insurance? Yesterday.
Brenna Finnegan (48:06):Yep.
Phil Young (48:06):When you're young, yeah.
Brenna Finnegan (48:08):Yep.
Eric Brown (48:08):Yeah. Yesterday.
Brenna Finnegan (48:09):Say that again, Phil.
Phil Young (48:10):Yeah. When you're young.
Brenna Finnegan (48:12):What is that again? Buy life insurance.
Phil Young (48:14):When you're young.
Brenna Finnegan (48:14):There we go.
Eric Brown (48:16):And then we do the same kind of math with it, just so I do give you an answer to your question. It's kind of the same math. What's the hole that needs to be filled here? All of a sudden, if we have that situation where there's four kids, one farming and we want to be equitable, well equitable doesn't mean $10 million to Johnny and then $10,000 each to the other three siblings, Mom and Dad probably won't sleep at night and that'll probably keep them from acting. But maybe if there was a million dollars worth of life insurance there, $330,000 per other kid, that's better than a punch in the face. Right? I think most people be okay with that.
Eric Brown (48:54):So again, it all depends on the need. It all depends on the need and it's highly individualized and here's the mind blow now. There's also life insurance policies that lets you use the death benefit when you're not dead for long term care. Oh, podcast number two.
Phil Young (49:14):There we go.
Brenna Finnegan (49:15):That could be a third.
Eric Brown (49:17):So that's a teaser. And again, if anybody wants to get into details or they have an immediate need and that's something that's really keeping them from sleeping at night, reach out, I'm glad to talk about that. Again, there's never any pressure for me. We don't slam sell anybody. It's all about what's doing best for you and making sure that you can make a good decision without fear of repercussion or buyer's remorse and take care of things and get out of your own way and make a good business decision.
Brenna Finnegan (49:41):So another question then, so the next generation life insurance, okay? You haven't inherited the farm yet or anything like that, but you want to plan for the potential of if that does occur and I want to keep it within my family. Obviously get insurance when... you're young.
Phil Young (50:00):You're young.
Eric Brown (50:00):You're young. Yeah. Again, that's looking at it from a different perspective. Now we can really blow this up. There's a lot of times Mom and Dad, if they've got the one child that's... They're in up in years, they could and do it if Johnny wasn't there, they can buy what's called key man insurance on Johnny because if something happens to Johnny who the heck's helping them finish out the farm, they're not physically able or mentally able to do it? So there's an insurance on the next generation by Mom and Dad, that's something that's done all the time.
Eric Brown (50:31):Now the younger generation also has a lot of other things, probably a young spouse, probably some kids. There's a need for them for life insurance, just for their personal life, but at the same time, they may be accepting loans coming to AgCredit since 1916, serving farmers, to get their loan to start buying stuff from Mom or to operate, to plant their crops. If something happens to them, do you want surviving spouse to have to pay that off?
Eric Brown (50:59):So it's not just a debt thing. There's also a future income earning component too. If 35 year old spouse passes, well there's a lot of years of support that that person was earning for the household that's not there anymore, but you can also have too much life insurance. If you can't pay your other freaking bills because you got too much life insurance, you have too much.
Eric Brown (51:23):So it's always individualized. It's finding out the exact financial situation of each client, it's truly assessing what their need is and where their pain points are, what they're nervous about and then trying to place them with the right product, the right time frame, the right amount, so that all those scary things go away.
Phil Young (51:44):Eric, thank you so much for joining us for this episode and thank you guys for tuning in. We'll be back for another great episode of AgCredit Said It and we'll see you next time. Thank you, guys.
Speaker 1 (51:55):Thank you for listening to AgCredit Said It! Want to talk ag in between episodes? Follow us on Facebook, Twitter and Instagram @AgCredit. For more tips and resources, visit agcredit.net and be sure to subscribe to the show in your favorite podcast player. Catch you next time.