Anybody have parent/grandparents/IL's with a successful business and no succession plan?

[mnnice]

My IL's have a business that has been their livelihood for pretty much their entire adult lives. While many years it's been a pretty meager existance the past several years have been great finanically. They have no plan for this business when they can no longer do the work. They keep expanding and buying equipment. But MIL's health is failing and she is spending a lot of her time trying to keep her own father out of the nursing home. They have a will, they have a pretty high net worth, but very little of what they have is not related to the business (i.e. land, equipment, ect)

They have three kids SIL, DH and BIL. SIL and DH both live several hundred miles away. SIL has no interest in this business and a pretty much no net worth that's not in retirement accounts. BIL lives a mile away and helps part-time with the business and has an interest in the business, but FIL mostly finds him unsuitable for anything that requires real responsibility (this is part family dyamics/part BIL issues with substance abuse). He also has not much for assets except his house and some retirement money. DH has an interest in working in the business and we do have some money that could go into the business. But we don't really feel like we can just move there without any sort of plan or a job for me with health insurance.

Anyway any thoughts?

[texmati]

I would think they would be able to put the business up for sale when they could no longer work. (as long as it's successful). Everything they have invested, all equipment, etc could be sold as part of the deal. (Basically, they could 'trade' all that for cash). There is nothing saying that it has to go to family.

If your dh is willing to take over the business, I would think he would either need to buy the business, or I guess it could come out of his inheritance. Your DH should have a frank conversation with his dad, and treat as much like a business contract as possible.

If you do decide to go for it, perhaps you could get a job with benefits in the same location, so you have a fall back position?

[mnnice]

Originally Posted by texmati

I would think they would be able to put the business up for sale when they could no longer work. (as long as it's successful). Everything they have invested, all equipment, etc could be sold as part of the deal. (Basically, they could 'trade' all that for cash). There is nothing saying that it has to go to family.

If your dh is willing to take over the business, I would think he would either need to buy the business, or I guess it could come out of his inheritance. Your DH should have a frank conversation with his dad, and treat as much like a business contract as possible.

If you do decide to go for it, perhaps you could get a job with benefits in the same location, so you have a fall back position?

They certainly could just sell it all if they had no children at all they most likely would just have an auction and sell their house and equipment. The land could either be rented out for income or sold. My MIL feels strongly that the farm should stay in the family despite doing nothing (so far) to help that come to pass. I find it unlikely that some unrelated person could ever come up with the money (either financed or as cash) to buy the whole thing outright (it would be in the low 7 figures).
Anyway, if either DH or BIL are going to work in this business and earn anything resembling a real income they are going to have to come up with some capital so that IL's have something to live of off and also to "buy out" SIL. DH doesn't really know the business and would if he did start farming he'd like his folks to be a learning resource for him (which isn't going to work if he doesn't get any ownership until after the both die. )

I have no problems with having an WOH job not in the business (in fact I might find it essential to maintaining my mental health). But at a person in my early 40's with an advance degree in my field I'm not really interested in either changing fields or working a job just because has insurance. I would also be limited to jobs a sane driving distance away which are finite in general and very finite if I stay in my field.

[Ornery]

My mother owns a highly profitable business and is looking at retirement. It is a consulting business so slightly different than your situation in that there is no equipment or land. The vision had always been that I would finish schooling in a few years and she would train me to take over but I recently realized it would kill my soul to work in her business. I had always thought the money would make it worthwhile for me but I just can't do it. She was devastated. It was a really difficult thing for her as my only sibling has made it abundantly clear she wants nothing to do with it. So I'm not sure what her plan is at this point.

[zebra15]

YES!... My father owns his company and I have no interest in working there. My sister and her husband *could* have that interest however BIL now has his own business and there would be a conflict of interest to change over, possibly BIL could buy him out but my father has refused that idea in the past... yes father is a bit of a PIA and has major control issues. My sister really does not have 'good business sense'. My father is probably looking to sell the company but again thinks its worth way more than it is and while its a white collar business the office needs upgrading and such things that cost money. I live across the country from this whole crazy mess!

[mnnice]

Well zebra FIL can be a bit of control freak himself (I am sure he just thinks he detail oriented). Anyway in the past he will show DH how to do things when we come for a 3 day visit that he has never, ever shown MIL or BIL.

Sometimes I really think the person who should be groomed for this business is DS1. He'll be ready for the working portion of his life by the time IL's want to retire (DH and I will be ready to retire ourselves. IL's are only 21 year older than us.)

[Caneel]

I worked as a business analyst for a bank for 7 years. Before that, I was an appraiser that worked with attorneys settling estates and divorces. All business owners (well, 99.9% of them) have crazy ideas about what their businesses are worth.

They may look at their balance sheet and see that they spent $1 million on equipment and think of that as "value" when the reality is, equipent is worth $0.50 on the dollar if it very nearly new and more like $0.10 on the dollar for anything more than two or three years old. Same goes for inventory. Real estate is worth what it is worth and again, people often think it is more valulable than it really is.

OP - you mention that some unrelated person couldn't come up with the money to buy it. Why not? Is it because they want more than it is worth? It is tough to get bank financing to buy a business but not impossible if the numbers work.

Through my first two jobs as my own marriage I have a lot of exposure to family business deals going bad, very very bad. Even with the best of intentions, wills don't get changed, land doesn't get transfered, etc. and if you already have a sibling involved that has some "issues" I would make sure everything is legal and in writing before your DH takes any steps forward.

[mnnice]

I guess I suspect that no one would be able to buy the whole business because I really can not recall any farming operation of this size being sold outright to anyone (related or not). Usually people expand 40 or 80 acres at a time (They own 600ish. and own a fourth of another large parcel that's held in an LLC (limited liability corporation).

It seems that families with a plan for generaltional sucession slowly transfer the business from the older generation to the younger. Also I keep reading how lending standards are much tighter. There are people in the area investing in ag land, but the generally are just that investors (and cash buyers) and then just rent out the land. I guess I haven't heard on any young (or old for that matter) farmers buying entire operations.

I am sure FIL is delusional about the value of his equipment, but I am equally sure that he has a firm and realistic idea of the value of his land (he goes to nearly ever farm sale in the area) and inventory (the price of his inventory is fluctuates daily and you can hear the current price on the radio)

I actually worry more about SIL than BIL (BIL would just want his share and he would most likely would want it in the form of land and equipment and the cattle he takes care of daily right now. ). DH would not have to run the business with him. They could run their own separate, but adjoining operations) . If something would happen to DH's folks she would want her inheritance in a completely liquid form yesterday. It would take $500+k to do that and the estate would not have $500K of liquid assets.

[confustication]

Farming operations are a whole different animal. I live in the thick of ranching/farming land, and the way things often happen here is that the oldest generation will stay in the ranch house for a while, then move into a place in town. The kids (those who will take over the operation) move into the 'ranch home' and work the ranch while making sure the parents needs are taken care of financially. It is best to make sure the farm changes hands prior to the parent no longer being able to work as it is much 'cleaner' this way. A good attorney will help to feel this out for any given situation and can draw up paperwork as necessary.

I think that the first step here is that you and your husband need to it down and have a very frank discussion with his parents about what you want, what they want, and all the nitty-gritty details of it. Often these things turn into HUGE issues among siblings, and many ranches and farms are being split apart because the kids just don't communicate. If your BIL is actually doing some ranching/farming work at this point, he is better poised to take over than your husband who isn't in the area.

Also, think long and hard about work opportunities for yourself. In my very small town, I struggle to find anything that pays ever $10/hour and that is with a lot of education and experience. Health insurance isn't all that routine- maybe 50% of the time it is offered.

[Caneel]

Yes, farming is a totally different animal. I have limited experience in that area as we had a specialist at the bank I worked at that did nothing but ag loans.

Your concern about the SIL and the estate is valid. If your DH and BIL couldn't come up with the cash, that could force the sale of all or some of the land. I live in an agricultural area and preserving the family farm is a big deal.

If you and your DH decide to go through with this, one option would be for your DH and BIL to buy the parts of the ranch they want from you ILs now and start paying them for the land. The land could be transfered and your ILs could hold the mortgage. That would give your DH and BIL ownership now as well as giving your ILs a steady income stream.

Or, they could give the kids their inheritance early. See the following.

I have a male friend with a sister. The parents had a large farming operation as well as a gravel/quarry hauling operation. The son (my friend) worked with dad, the sister had nothing to do with the business and didn't have any interest in it.

When dad wanted to retire, he had the assets valued. I will use $1 million for simple math but it was actually more.

Mom and Dad said to son that he could have the business now but he had to "buy out" his sister. He got the $1 million business but had to pay his sister for half of it. He paid her $500,000 (plus interest) over 10 years.

It kept the banks out of the transaction. The son was able to buy the business and the sister got her portion of future inheritance early. This did require the services of an experienced estate planning lawyer.

[mnnice]

I like the idea of buying the land on contract for deed as long as it was a small enough parcel that we could pay it off in a fairly short time frame.

IL's could keep farming it, but when we made our annual mortgage payment we would add to their cash reserves (i.e. pay off SIL fund). My only concern is that FIL would turn around and spend this money on yet more tractors and equipment and not let it set in a more passive and liquid investment.

BTW, IMO it's not a ranch. Raising 40 calves to stocker weight each year does not make something a ranch. BIL's daily time commitment (and pay) on this is about the same as having a paper route (90 minute a day?) I am guessing about 90% of IL income comes from selling commodity corn and beans.

[JollyGG]

Not my parent's or my husband's but I have an aunt and uncle who own a farm worth significant money. They have no children. My uncle (who bought the farm from his dad several years ago) is an only child. My aunt who married my uncle later in life (age 40) has several nieces and nephews but none who both want to do it and the aunt and uncle would be happy to pass it on to.

It will get sold either when they retire or when they pass away. They have made me the executor of the will. My aunts nieces and nephews will get a small sum of money at the sale, but probably not much at all and the remainder will be split between a charity they are heavily involved in and their church.

It is probably for the best. My uncle actually bought the farm from his father when he retired. He was an only child and the whole thing still left behind lasting relationship issues both between my uncle and his father and among the extended family.

Even though the farm is worth low 7 figures I don't doubt that with patience an appropriate buyer will come along. I do know how much the farm is worth and actually know of the value of a couple of offers (below value but still significant) that have been made on the property as my uncle wants to make sure that I know what's going on as the future executor of the will.

[mnnice]

Jolly-

So you uncle bought it from his dad and was functionally the only heir anyway and there were still bad feelings.

BTW-The farm in question is the state you list as you location.

[JollyGG]

Originally Posted by mnnice

Jolly-

So you uncle bought it from his dad and was functionally the only heir anyway and there were still bad feelings.

BTW-The farm in question in that state you list as you location.

Yep. There were still bad feelings even though he purchased it and was the only heir.

Yes the farm is in SD.