Before he went to kindergarten, Joel Huber was already the topic of conversation among farmers in Wellman, Iowa. To say he was born to be a farmer is an understatement.
“I’ll always remember Joel as the 5-year-old who could work his way around anything. One time his dad put a governor on their snowmobile to try to slow Joel down. It wasn’t long before Joel figured out how to take off the governor so he could go fast,” says Steve Bohr, a former neighbor and long-time family friend who runs an estate planning business in Lisbon, Iowa. “That type of hands-on work is what agriculture is all about.”
Joel will be the first to tell you he’s a lucky man. From the time he could walk, he knew farming was what he wanted to do. Although he assumed he’d end up at an ag school, he took advantage of an opportunity to play football at Central College and majored in environmental science. He says it opened his mind to new ideas and perspectives. After college, his parents, John and Shirleen, insisted he find real-world experience off the farm before coming back to the family row crop and hog operation in Washington County, Iowa.
“I’m glad I did that,” Joel says. “I spent a couple years as an elevator manager with ADM and a couple years as a maintenance manager at Pella Windows. I learned a lot from both experiences and was able to bring back valuable ideas on employee management to our farm.”
Generation by Generation
Today, Joel is living out his dream on the family farm alongside his wife, Laura; his sister, Jolisa and her husband, Derek; and his parents.
“I knew what to expect from the farm when my wife and I came back,” Joel says. “But farming is unique. My old jobs didn’t demand 24/7 attention. Initially, I wanted to focus more on row crops and less on hogs. As I got into the farm, I figured out for our operation, hogs are a steadier source of income, so we ended up focusing on both.”
From the start, John handed off specific responsibilities for Joel to take over and ‘own.’ Joel’s willingness to be trained and to learn from others helped make the transition easier.
“Of course, my dad and I don’t see eye to eye on everything,” Joel says. “I wanted to do things differently in some areas, and I was fortunate dad let me. He turned over the employees and new technology. It was my job to make them work. I thought that was a good way to start the succession process.”
Although it wasn’t easy to give up the final say on some things, his dad believed that sharing leadership opportunities was an important step in the process.
“Dad still owns a few pigs and his land,” Joel explains. “My sister and I rent it 50/50 from him. My brother, Jacob, is not interested in the work of the farm, but he is supportive. I think we have a solid succession plan and know where things will transition as mom and dad move on.”
A Proactive Approach
However, that plan just didn’t happen. When John and Shirleen reached out to Steve Bohr with Farm Financial Strategies about 15 years ago to begin the conversation about transitioning the family farm to the next generation, Bohr admits he was impressed with their timing.
“John and Shirleen were very proactive in getting the kids involved in ownership as part of the process,” Bohr says. “Having the foresight to develop a plan and then actually facilitating it while the kids have the opportunity to grow into the situation is paramount. That’s been key to the Huber family’s success.”
One of the challenges when turning over the farm to the next generation is there’s a bit of a misunderstanding of what succession planning is … and what it isn’t.
Succession planning is not estate planning, Bohr explains. These are two very different things that often get lumped together. He defines succession planning as how a family transitions a lifetime of meaningful work in a way that cash flows in this world.
“There’s a financial part of succession planning, and there’s an emotional part. The combination of the two make it really challenging,” Bohr says.
Although Joel’s parents still have some entities and ownership, they’ve turned management and control over to their children while they are in their prime years (35 to 50 years old), he adds.
“To me, that is succession planning. That’s what we need to do to give people the opportunity to achieve business success,” Bohr says.
John and Shirleen’s entities are backed with shareholder agreements and operator agreements that limit what outsiders can do.
“Whether it’s a divorce, bankruptcy, a creditor, or if one of them just retires or dies, a shock to the system will not cause that family grief. Right now, they have enough problems in the pork industry without a shock to the system creating an additional earthquake in their world,” Bohr says. “To John and Shirleen’s credit, they’ve gotten out of the way for the most part to let Joel and Jolisa take it to the moon or run it into the ground.”
However, it’s hard to step aside and hand over control. All too often, parents hold on to everything until they die, but Bohr says that’s detrimental to a good succession plan if they want the farm to continue.
“It’s a balancing act to get that next generation going. Arrogantly, we think we’re the best and our kids don’t do it as well as we will,” he points out. “The fear of something bad happening keeps us from transitioning, from doing what we really probably should.”
Why You Need a Succession Plan on the Farm
The future of agriculture hangs on the individual family’s ability or inability to have a good succession plan, Bohr believes.
Today, 33% to 35% of all land is owned by people ages 75 and older. Meanwhile, 66% is owned by people who are 65 years old. If those people hold on to all that property until they die (and they’re living longer), Bohr wonders what agriculture will look like when this huge amount of wealth transfers at values that are not cash-flowable?
“One of our biggest nemeses, ironically, is one of our best tools – basis step-up. That concept in agriculture runs the risk of gutting us,” he says. “It often takes people 50 years to build an estate. Then, when they die, they expect the next generation to buy it out in nine months. That same asset that took somebody 50 years to build now doesn’t cash flow because of what’s going on in the subsidization of the land market. We’re building ourselves an enormous problem that is unsustainable for the next generation to be able to take it over.”
That’s why families need to begin planning early to put the next generation in a position to be able to compete and afford to grow, buy assets and make a living.
“We’re failing miserably at that right now,” Bohr says. “Farming is a tough business, physically, mentally and financially. You don’t want the reward at the end to be upset by a lack of thought or a lack of planning.”
Where Should You Start?
In addition to helping navigate everyone’s feelings about the process, Joel says having an advisor’s insight has been very important in understanding regulations, estate taxes and more.
“As with everything there is a cost, but his expertise is worth it,” Joel says. “There are so many rules and regulations, and the estate tax exemptions are a moving target. Having someone who knows what’s going on and how to best help you is invaluable.”
Advisors can help answer the big questions such as how can we plan to best protect the farm? How do we pass it on to the next generation?”
Bohr recommends starting the process by building a strong team. In a perfect world, he encourages producers to interview three different consultants, three different attorneys and three different accountants to find the right people for the team.
Don’t Overlook This Part
Developing a succession plan takes time and hard work. So, don’t waste that by failing to communicate it with your family, Bohr advises. His company offers a family meeting for every family, and only 60% of the families take them up on it. The other 40% don’t want to rock the boat.
“If we know there’s an issue, we may as well deal with it,” he says. “It’s like driving a combine. If you start hearing a noise, you don’t hammer down and think it’s going to go away. It’s going to get worse, and eventually it’s going to break.”
He admires how the Huber family has involved all three kids in various capacities in the process.
“Everyone knows their role,” Bohr says. “They may not always agree, but they’re on the same page and their plans align with their goals.”
They also keep talking. An initial plan has been established, but it’s re-evaluated and reviewed as the operation and their lives change.
“To be honest with you, the Huber’s plan wasn’t ‘done’ 15 years ago when we first sat down to talk. It’s always evolving,” Bohr says.
He reminds producers nobody has a crystal ball to know what the future holds. That’s why he encourages people to plan with an exit strategy in mind.
“Most people plan, thinking of it in terms of getting into it,” Bohr says. “I believe we’ve got to think about how we’re going to get out of it.”
How do you know if you’ve made the right succession plan? He says time will tell.
“Everybody’s goals are different. There is no one right plan,” Bohr says. “Aligning your goals with an action plan, whether you’re taking action now, later or a little of both, creates harmony — and that’s a successful succession plan.”
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