Presented by william e roberts clu chfc auctoris may 14 2014
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Preparing to Become the Next Generation. Presented by: William E. Roberts, CLU, ChFC AUCTORIS May 14, 2014 . Farm and Ranch Statistics. USDA 1999 Agricultural Economics and Land Ownership Survey revealed: Close to 50% of farm and ranch owners were 65 or older

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Presented by: William E. Roberts, CLU, ChFC AUCTORIS May 14, 2014

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Preparing to Become

the Next Generation

Presented by:

William E. Roberts, CLU, ChFC


May 14, 2014

Farm and Ranch Statistics

USDA 1999 Agricultural Economics and Land Ownership Survey revealed:

  • Close to 50% of farm and ranch owners were 65 or older

    USDA 2010 economic survey revealed:

  • Most farm and ranches are family owned

  • 88 percent of all farm assets were illiquid

  • 70% of the nation’s farms and ranches will change hands in the next two decades

  • 89% of farmers and ranchers do not have a transition plan

Recent Family Business Study

Of 500 Family Businesses surveyed:

  • 50% plan ownership transition by 2016

  • 70% have no written transition plan

Six Issues in Ag Family Transition Planning

  • Relationship issues

    • Intransigent senior generation

    • Siblings conflict

    • Siblings spouses

    • Multiple marriages resulting in non-blood line next generation heirs

    • Mixing business and personal expenses

  • The Numbers

    • Three siblings beget eight children ….how to divide 8 ways

Six Issues in Ag Family Transition Planning

  • Operating siblings in conflict with non-operators

  • The potential of an estate tax

    • Creates a liquidity crisis

    • Forced sale of illiquid farm or ranch assets

  • Planning documents

    • Don’t exist

    • Out of date

    • Values out of date

  • Heirs not prepared for what they will inherit



Research on Wealth Transition

Based on two studies of The Williams Group.

Study #1 – Interviews by The Williams Group of 2,500 families who had transferred wealth, were in the process or had done nothing. Research confirmed 70% failure rate and identified causes of the failures, even among families who only owned investable assets.

Study #2 – Research on 750 families conducted by The Williams Group and Michael Morris at the Family Business Institute at the University of Oklahoma. Research supported the 70% failure and the causes of the failures.

Conclusion – Whether a family owns a operating business or is in the business of managing its assets, the failure rate is the same.

How is Most Transition Planning Created?

  • It is often ignored

  • Focused on Estate Planning

  • Estate taxes are a primary driver of planning

Critical Ingredient for Transition Success


Competent Successors

Without Competent Successors, there is no Succession Plan

  • What does the next generation want to do?

    • They need to do it well

    • May need lots of mentoring

  • Need to create or develop competent leadership

  • Non-family ranch manager

Ag Family Business Case Study

Case Facts

  • Neuberger Family-Owned Ranch

  • Location in Eagleford Shale area of south central Texas

  • 1200-1500 head of cattle (amount varies with drought and feed availability)

  • >50,000 acres

  • The ranch owned by the family for several generations

Business Operations

  • All assets – land, cattle, and mineral rights – owned in The Neuberger Family Ranch Corporation, a C-Corporation

  • Neuberger Ranch Corporation is owned equally by the three siblings (G-3) currently living on the ranch

Family Situation

  • Parents are deceased, but left the ranch with considerable debt

  • Bob Neuberger (oldest operating sibling) age 53, married to Evelyn

    • Cal – age 24

    • Evan – age 22

    • Ellen – age 20

  • Billy – second oldest – age 51 and married to Lauren

    • Darren – age 20

    • Sarah – age 18

  • Kevin – youngest brother – age 45, married to Jean

    • Debbie – age 15

    • Robert – age 12

Family Assets

Mineral rights:

  • Oil and gas fracking results in between $120-150K cash flow per month

  • Being used to pay down debt

  • Debt reduced from over $5M to less than $1M today

  • Cash flow could last 15-20 years

Family Assets

  • Total value of the ranch, land, cattle, equipment and mineral rights cash flow exceeds $35M.

  • There is a last man standing mandatory buy-sell agreement in affect for the interests of the 3 siblings but it is perceived to be out of date and buy out is for $5M per sibling.

What are the challenges?

Family Conflict Issues“Relationship issues are the biggest liability a family business faces”.-Joe Paul, Partner, Aspen Family Business Group

  • Family has volatile interpersonal issues

  • Jealousy over money spent on one sibling’s house versus another’s

  • Compensation issues….equal is not equitable

  • One sibling is “the boss”

  • In-laws feelings hurt

Family Ownership Issues

  • Major family value is to retain the land within the family to honor their parents’ and grandparents’ wishes

  • Two of the seven next generation (G-4), Cal & Ellen are interested in operating the ranch into the next generation

Summary of Challenges

  • The simmering conflict between the families has been keeping them from addressing their ranch succession planning

  • Buy-Sell Agreement is out of date, underfunded, and does not match current objectives

  • All the assets are owned by the operating C-Corporation

Summary of Challenges

  • Two of the seven G-4’s interested in operating the ranch … likely minority ownership

  • Potential estate tax issues could force a sale

  • Estate plans are out of date and are not taking advantage of opportunities to reduce estate tax at G-3 demise

“Happiness is having a large, loving, caring, close-knit family…in another State”.

– George Burns

Succession Strategies Application

Conflict and confrontation between

siblings and their family:

  • Family agrees this is a major impediment holding them back

  • Family business consultant providing outside input

  • Intervention regarding an addiction issue

  • Real breakthroughs in communication

  • Had to be addressed simultaneously with the estate and buy-sell planning

  • Some of the issues may not be “solved”

Current Buy-Sell Agreement


Owner B



Death Benefit

Paid to C-Corp

Owner C

as policy owner

Sale of Shares

C-Corp buys

shares from

Owner A's Estate

Stock Basis


Owner's B & C keep

Owner A's


their same basis since


C-Corp buys Owner A's



Stock Redemption Issues

1. Death Benefit paid to C-Corp may trigger AMT

2. No Increase in Basis to surviving owners

Buy-Sell Agreement

Added Tax Cost

(20% rate)


Added ObamaCare Tax Cost (3.8%)

Current Corporate Ownership Issues

Current Corporate Structure

All Business Units Under One C-Corporation

Neuberger Ranch













  • Ownership Structure Concerns

    • Liability and creditor protection issues

    • If the ranch is ever sold, very unfavorable tax treatment accorded a sale of assets owned by the C-Corp

    • Makes planning for the passage to the next generation very cumbersome


  • Next Generation Objectives not in alignment

  • 2 will stay on ranch while the other 5 are likely to leave

  • Challenges to family harmony and business success if operating and non-operating children have equal say and vote.

  • Differing objectives of operating and non-operating children

  • Very difficult to divide the assets of the ranch without huge tax impact

  • Could result in family conflict and disharmony in the next generation


5 Alternative Strategies

  • Do nothing & stay together

  • Divide ranch, mineral rights, and debt into 1/3 interests

  • One sibling buys out the other two and continues operation

  • Sell out and divide assets

  • Stay together

    • Attempt to work on differences

    • Change C-Corp to an S-Corp; Recap from voting to non-voting stock

    • Develop a fair compensation plan

    • Allocate home improvement budget

    • View mineral cash flow as an “ownership asset”

    • Work on transition plan to G-4’s interested in operation

C-Corp to S-Corp

Neuberger Ranch


Neuberger Ranch




Non-Voting Stock

Voting Stock

Buy-Sell Design

Buy-Sell Agreements

  • Purpose of a buy-sell agreement

    • Create a plan that defines control, value and dispensation of the stock under defined triggering events

Buy-Sell Agreements

  • Major components of a buy-sell agreement

    • Triggering Events

      • Death

      • Disability

      • Termination of participation

      • Divorce

      • Sale of the entity

    • Valuation for different triggering events

    • Funding for triggering events

Estate Tax Issues

Transition Issues

Howis the estatetaxfunded??



Estate Issues

Issues to be considered

  • Should some of the growth be transferred to the next generation now?

  • How will any interest transferred be held?

  • Buy-sell agreements to control where those interests go in event of a triggering event

Gifting Considerations

  • If stock is gifted or sold to NexGen, who or what should be the owner?

    • Outright ownership

      • Concern: Spousal rights

    • A trust for the benefit of G4

Gifting Considerations

  • Estate planning considerations for NexGen’s?

    • Possible estate taxation

    • Will stock stay in the bloodline, be sold back to other NexGen’s or passed to spouse?

Estate Issues

A Plan to Pay the Estate Tax

  • Section 6166

  • Life Insurance

  • A combination

Estate Issues

  • Irrevocable life insurance trust

    • Keeps insurance out of the estate

    • Provides liquidity when needed

    • Can be funded with income producing gifts

    • Premium financing

“The definition of crazy and impossible is doing the same thing over and over again and expecting different results!”

- Albert Einstein

Lessons Learned from Neuberger Case

  • Important to seek outside specialist to deal with relationship issues

    • “Relationship issues are the biggest liability a family business faces”

  • Transition planning requires a team of advisors

  • Next generation succession planning is more complicated due to the number of successors

  • Outdated documents can be contentious

  • The estate tax liability can complicate the best of plans

  • The next generation is often frustrated by their parents issues and lack of a plan

Shirtsleeves to Shirtsleeves?

Risk Perception

Why do 90% Fail?

  • 60% of failure is due to a lack of communication and trust within the family around group decision making and governance

  • 25% of failure is due to unprepared heirs

  • Only 3% of failure is due to failures in financial planning, taxes and investments

What is Success?

Manage & Use Wealth





High Self Esteem

Building Trust, Communication & Team Through “Meaningful Experiences”

All Leading to – Healthy Family Group Governance; Able to Manage Entities and Trust Structures

What is Failure?

Wealth Used Inefficiently & Wasted




Low Self Esteem

Entitled Individuals

All Leading to – Unhealthy Divided Governance

Rating your Family’s Preparation

Wealth Transition Checklist

William E. Roberts, CLU, ChFC


5350 S. Roslyn Street, Suite 310

Greenwood Village, CO 80111

Office: 303.740.8001

Fax: 303.220.9545

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