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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Presented by william e roberts clu chfc auctoris may 14 2014

Preparing to Become

the Next Generation

Presented by:

William E. Roberts, CLU, ChFC


May 14, 2014

Farm and ranch statistics

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

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

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 planning1

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    • Out of date

    • Values out of date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

Presented by william e roberts clu chfc auctoris may 14 2014



Research on wealth transition

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

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

Critical Ingredient for Transition Success


Competent successors

Competent Successors

Without competent successors there is no succession plan

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

Ag Family Business Case Study

Case facts

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

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

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

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 assets1

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.

Presented by william e roberts clu chfc auctoris may 14 2014

What are the challenges?

Presented by william e roberts clu chfc auctoris may 14 2014

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

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

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 challenges1

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

Presented by william e roberts clu chfc auctoris may 14 2014

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

– George Burns

Succession strategies application

Succession Strategies Application

Presented by william e roberts clu chfc auctoris may 14 2014

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

Current Buy-Sell Agreement

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 Ownership Issues

Presented by william e roberts clu chfc auctoris may 14 2014

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

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

Presented by william e roberts clu chfc auctoris may 14 2014

C-Corp to S-Corp

Neuberger Ranch


Neuberger Ranch




Non-Voting Stock

Voting Stock

Buy sell design

Buy-Sell Design

Buy sell agreements

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 agreements1

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

Estate Tax Issues

Transition issues

Transition Issues

Howis the estatetaxfunded??



Estate issues

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

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 considerations1

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 issues1

Estate Issues

A Plan to Pay the Estate Tax

  • Section 6166

  • Life Insurance

  • A combination

Estate issues2

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

Presented by william e roberts clu chfc auctoris may 14 2014

“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

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

Shirtsleeves to Shirtsleeves?

Risk perception

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

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

What is Failure?

Wealth Used Inefficiently & Wasted




Low Self Esteem

Entitled Individuals

All Leading to – Unhealthy Divided Governance

Rating your family s preparation

Rating your Family’s Preparation

Wealth Transition Checklist

Presented by william e roberts clu chfc auctoris may 14 2014

William E. Roberts, CLU, ChFC


5350 S. Roslyn Street, Suite 310

Greenwood Village, CO 80111

Office: 303.740.8001

Fax: 303.220.9545

[email protected]

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