Thanks for coming.
Mark Cannella, University of Vermont, Extension.
I'm here in the office in Berlin, Vermont.
Introduction to Maple Business and Transfer Planning.
Let's get into it.
If you signed up for this session,
you've probably been to Maple Manager,
at least for the signup.
Just always encouraging people to go back.
We've added a few more business planning resources
in the past couple months.
We did have a technical report that hit,
which is a survey of northeastern maple producers,
dates back to 2019,
but pretty rich data about some of the trends
in the northeast, which was exciting to put together.
And then the other more recent documents,
there are some startup investment profiles.
If you or anyone you know is looking at getting established
or doing a complete overhaul,
we put together numbers on startup tubing systems,
basic equipment, basic sugar house,
really to put some numbers to how big the investment is
as people get going.
Here we are on the 31st, coming up,
we've got four more sessions.
Next week, the 7th, Marcus Littleheart's
gonna do a presentation on maple syrup quality.
This goes back to about a little over a year ago,
we did an intensive project.
We bought over 200 samples of syrup online
and tested for them for quality standards.
Had some interesting findings from what we saw,
what we graded, what we tasted.
Mark's gonna talk about that next week.
I'll be back on the 14th,
a little bit on national maple market development,
some of the projects going on within the member associations
and a little bit of an overview
of the different market research that's been popping up
in the past couple years, which is exciting.
Then on the 21st,
another maple financial planning session,
and then Chris Lindgren will present,
we'll take a week off.
On October 5th, he's gonna present
on sap business models
and looking at assessment of the sugar bush
before you start and then some of the considerations
of just running a sap-only business,
rather than converting sap completely
into a finished syrup product.
All right.
Transfer planning, succession planning.
I think first I'll start just to say
that the words that I use are, I think,
kind of interchangeable.
I'll say transfer planning.
Coming up in the farm business planning world,
for better or worse,
there's been an assumption of this idea of transfer
within a family and the concept of a family farm.
It's a great concept, but I will in,
I will like interject the word succession.
And I think in tonight's presentation,
you'll hear there's definitely specific dynamics
of the transfer of a family business within family
and there are specific dynamics
to a small family business.
But we certainly know, both in the farm and maple community,
that business transfers do not have to happen
within the family.
And so the idea of succession,
or I may even see exit sale, buy/sell agreements.
Really the concept we're getting at tonight
is the idea of there being current owners or partners
and there is an intent and an outlook for other owners
to come into the business world,
or come into business ownership,
and whatever form that may be, so.
There is some specific reference to family,
but this isn't in the,
this is not on some assumption that there
are younger children that are growing up necessarily.
Maybe, maybe not.
So my experience,
I've been doing transfer planning in Vermont
for 15 years on and off,
mixed in with the business planning I've been doing.
We all know the trends.
The survey that we did with the Northeast producers,
I think our average age was well over 55 or 57 years old
for primary owner of a business.
And it's never too early to start succession
or transfer planning.
Unfortunately, it sometimes can be late
if you don't start until late in your career,
late in your life.
A lot of these things are better
if they're staged over time.
And we'll talk a little bit about that tonight,
we start to get the specifics of some estate planning.
Okay, so what is transfer planning, succession planning?
Really the multi-year process for current farm owners,
family members, and future farm owners,
whether they're family or not,
to discuss the things that need to be discussed,
to analyze the things that need to be analyzed,
some serious looks at the business,
serious looks at the people,
and then to make decisions.
The discussion and the analysis can take years
and it can play out.
Certain decisions can be made early on
and certain other decisions often can get,
kind of pushed off, for good reasons as the process unfolds.
But we're basically talking
about the future ownership framework
and the future management framework of an existing,
an existing business.
I put some pictures up there,
love the free clip art that I can find.
I just wanna highlight, you know,
that idea of a house of cards.
When the situation is shaky at best,
the transference succession planning can become difficult,
or let's just say, vulnerable.
So I've seen some examples of things that can come set up,
you know, a house of cards so to speak
when it comes to business transfer.
One of 'em I think just really generally is,
anyone that has the assumption
that the other people in the process
are gonna think the way that they think
or value things the way that they value them,
that could be a shaky starting ground.
When I've seen parents that assume that the children,
let's say, have the same value framework that they have,
that's an assumption that can sometimes
set things off a little bit.
Other things that can be shaky,
struggling businesses.
That's not to say that business ownership is,
it's always gonna be perfect
and businesses are gonna be clear sailing.
But when businesses are really struggling,
like chronically not profitable
or chronically have challenges financially,
that can be a, you know,
a shaky situation to try to set up to be transitioned
to another owner.
So that's just kind of two examples.
And you know, I think the real emphasis
with the planning process is try to set up that foundation,
both in the process
and to take a hard look at that business or that property
and try to start to find those solid frameworks
that you can work off of,
not only for the planning process,
but also for the future framework
that's actually gonna, that's gonna last, you know?
We're not trying to do some magical thing
when it defies all odds.
We really wanna have a setup for success,
which is long term, you know,
the idea of the transition
and making maybe a legacy out of that enterprise.
So I mentioned transfer,
I did mention, you know, exit and sale.
The two buckets that I often put this work into is
as I sit, if I sit at kitchen tables with people
and start talking about their business,
we're looking at the transfer, the exit,
the sale or the acquisition of, you know,
the management of business operations and decision making.
That may be a starting point and maybe separate
than what's below it,
which is the ownership of farm assets.
We really do have two different zones in there.
We've got operators,
and some of you on the session tonight
are the actual operators, right?
You've got a certain skill set and you've got authority
and you're making decisions to keep the enterprise running.
That is something that warrants consideration in transfer,
transition, even sales, right?
How will that institutional knowledge transfer
to the next person?
Also, what is the ability for that next person
to take over full decision-making.
That's clearly separate than the ownership of items.
And then the pictures below really emphasize that,
really two classes of items.
You've got some short-term items,
things like equipment, 10 to 20 year lifespan.
They may be a very different framework in the transfer
or the buyout or sell plan compared to property ownership.
And there's some implications, certainly.
Different asset types are gonna stack up differently
from the perspective of both the exiting owners,
in what they need for security now and later.
And then also what the,
what I'll call the acquiring parties,
the different needs that they might have sooner or later.
So with transfer planning,
certainly in the context of a family transfer
or a non-family transfer,
there is the future of the family
that's being discussed, right?
There's this concept that there's individuals
that have been doing this thing for a while,
individuals or teams and they're, you know,
possibly sun-setting on their careers.
Then there's the future of the business.
Is this business sun-setting?
Is this business model sun-setting?
Businesses can adapt and certainly adapt over time,
just like people do.
But I'd say with transfer,
we know that the exiting owners
are clearly sun-setting on their career.
And then the question is often with that business model,
what's the future of this business?
Does it need to be managed or can it be managed
in the same format?
Or is this business going
to look dramatically different over the next 20 years?
That'll have a big impact
on how the planning discussions go,
as it relates to those things like decision making
and asset ownership.
We've got legacies on the line here,
especially if we've got family decisions to be making.
There's land, there's wealth,
equity hopefully built up in property.
There's the vocation, the occupation of farming.
And then this concept of family harmony or conflict
is a big part of this from a family perspective.
And that's both within, if there's exiting owners that are,
say parents and acquiring owners that are children,
could be nieces and nephews, I've seen that for sure.
Also the potential for conflict,
if you've got two owner and partners,
whether they're spouses or brothers
or stepbrothers, cousins.
The family dynamic,
they're bound to this concept of property or family legacy.
We get into some pretty strong emotional territory there
and it's gotta be factored in,
factored into the planning
and factored into how decisions get made.
And we certainly got this opportunity for the new owners
and this vision, you know,
the sun's rising on that next business model
and those next individuals and it could be very different.
So we're kind of trying to manage all those things going on
with the knowledge that we've got different people
in different places.
And that dynamic of people coming and going,
it really came to bear.
I've been a part of the Vermont Farm Viability program
for over a decade,
and we've been doing transfer planning with individuals.
Just to give you a snapshot of what those programs
have done here in Vermont,
their one-on-one planning programs,
and let me say one-on-one's probably a bad acronym,
'cause it's usually one-on-five with a transfer plan.
You've got an advisor,
and you could have exiting owners,
or future exiting owners,
and you could have possibly acquiring parties
or family members in those discussions.
Transfer plans do not develop quickly
and get finished quickly.
For us, from a technical assistance standpoint,
we could be working for 12 to 18 months
with a particular owner or family.
The planning process never really seems to be done.
'Cause there's, it's like kind of incremental.
There might be some decisions that get made early on,
but often these things play off or play out over,
could be 5 years, 10 years, 15 years.
Ideally owners are starting to have these conversations
in their 50s and the "transfer" may stage over time
and certain aspects,
especially like a real estate transition,
those things may not occur until death.
So, you could have a stage transfer
and the actual "transfer" of the property of the farm,
it may not happen 15, 20 years out.
This idea of people coming and going really
became important within our program,
because what we found was,
if we sometimes tried to have this kumbaya moment
and as an advisor,
as me to come into a kitchen table and sit with,
say mom and dad and daughter
and then maybe a son that lives in DC
that's got a great federal government career
that doesn't farm,
to facilitate that conversation,
pretty exciting, pretty dynamic.
But what we found was,
sometimes you need different advisors
for different parties
and the parents often needed a split advisor
to specifically talk about exiting the business,
retirement estate planning,
and then say that daughter as an example,
actually needed an advisor to talk about the specifics
of coming into the business,
what was needed on her part to come in.
So I'm gonna really hit on that a little bit tonight.
This idea of exiting owners
and what'll call these acquiring parties
or prospective owners
and really recognition that they need different things.
And this is really gonna be the, you know,
the building blocks.
We will talk a little bit about some legal dynamics,
but really general tonight really,
to kind of set the stage for the process,
knowing that there's gonna be a lot of technical things
that come up and you know,
I'd be glad to share resources with people
if you're moving into those next steps.
Basic elements in a maple business transfer.
Like I said, these things may not happen first,
but let's look at the hard assets.
Someone owns the forest property,
somebody owns and has invested in buildings,
someone's made improvements,
those improvements, we know 15, 20, 30-year lifespan.
Have you built roads in the woods?
Have you established culvert systems,
following forestry practices?
And you've maybe done some things to set up
that's gonna have a lasting impact on that property.
A home on the property or houses on the property,
I'll even add potential house sites on the property.
Those can be key bargaining chips in estate planning,
as you start to think about what you pass
on to individuals within the family,
and they have significant values,
you start to add up, you know,
the value of goods, equipment.
If you're in the sugaring business,
we know there's a lot of equipment there.
A lot of shiny stainless steel.
So the other bucket, the management responsibilities, right?
We've gotta figure out the transition of making decisions
and who gets to make decisions when,
debts and obligations, investments,
prior investments in the business,
debts out in banks or other capital providers.
Capital access,
especially for that younger generation or newer owners.
How are they gonna access the capital
to run the business?
And compensation for sure.
If these are business models that we think
are viable employment opportunities for people,
then we start to look at compensation/profitability
to understand the outlook for those new owners,
what they're getting into.
Looking at family transfer here,
a little more specifically,
And even if the business is going to be shifted
to a non-family member,
I'm gonna assume there's owners that
have a family dynamic potentially to be sorted out.
Especially when we're talking about land equity
and any long term wealth you've generated.
So here are the things that come up
when I'm visiting with family on transfer things.
Parents need to decide about their estate plan
and inheritance.
They need to be thinking about the progression
of them sun-setting in their lives
and whatever they've built up or whatever opportunities
they want to impart on children or other family members
or within the broader community.
You know, charitable giving,
things like that, all get factored in
and they need to be thought about
and need to be thought hard about.
Farming and non-farming children,
a key factor in a family situation for sure.
Is there a member of the family
that's already been involved in the business
and what have they been putting in,
potentially uncompensated?
What have they been putting into the business?
And you have other family members
that are not active in the business,
but they may be getting some form of share of inheritance
or that would be the intention,
so navigating that.
You'll see fair versus equal
come up a lot in the literature,
if you start reading any worksheets,
if you check out out any of the links that we pop up here.
This is a real important concept.
And really what's,
let's see,
the best example for this is fair is not always equal.
And the classic example could be the story,
let's go with a stereotypical story,
of a family dairy farm and a daughter that stays on the farm
and works and is under-compensated for 15 years
and the parents are still involved into their 70s
'cause it's the love of their life.
And then you come to the transfer plan
and you try to figure out,
now how in fact is this daughter going
to buy out the other brothers that potentially
want an equal share of $1 million property?
And you start to look at the numbers and you say,
"Oh well this person put a lot of sweat equity in
and wasn't compensated,
so can we just split the property into three dollar amounts
and you know, deal with buyouts?"
And it's like, well no, fair is not equal.
So you start to factor in some of those things.
And I mean there's guidance,
I don't know that there's a rule book on this,
but just the concept that the dollar values
don't necessarily match up to what we would consider fair,
when you start to think about the dynamics of agriculture,
dynamics of sugaring here.
Different opinions,
we're gonna have different opinions in family.
I don't think anyone's surprised by that.
And then the big thing often happens
is the current owners being able to let go.
This is a big, a big issue.
Often a big problem in certain projects
I see that don't tend to move forward,
the concept of everyone liking the idea of transfer,
but when it gets down to it, certain people,
potentially founders of a business,
having a very difficult time letting other people
make management decisions,
getting out of the way for that next generation
of ownership to come into management.
And those are big, big factors
and you can imagine we're starting
to kind of push on family dynamics through a lot of this.
That idea of letting go is often a little cleaner
in non-family, non-family buyouts for sure.
But it needs to be, needs to be addressed for sure.
All right, so why do people avoid transfer succession,
exit planning?
No one likes the word exit planning.
I think they don't wanna admit
that they're getting out or giving up.
Here's what I've seen,
people that really avoid this to potentially
to the problem level where it gets too late.
I don't have time. We're always busy.
Yeah, life's busy, right?
This is really busy.
The business is struggling.
When the business is struggling,
it's certainly difficult to sort of get out of it
and start doing long-term planning.
Often when the business is struggling
that can put up so many hurdles
to transfer or succession planning
that the members often don't really fully engage
or they sort of maybe know what the outcome will be.
This is when the younger generation clearly
doesn't show interest,
because they know there's maybe no future compensation
or livelihood from that particular property.
This is often maybe where existing owners
have a real difficult time even engaging
in transfer or succession of sale.
'Cause it's painful to be a part of a business
that's been struggling for years
or maybe has been profitable and viable
for a couple decades,
but then having a bad trend.
People get embarrassed,
people feel vulnerable talking about struggling businesses.
Other reasons to avoid transfer planning,
it's difficult to talk about death, yes.
Family tension, competing interests.
Yes, the fair versus equal dilemma.
You know, I mentioned that,
won't get into it too much.
It's just difficult stuff, especially for people,
if you're in the forestry world
and you've sort of thrived on being active and resilient
and able to tolerate climb up and on steep slopes,
with or without snowshoes,
this idea of aging is difficult for sure.
And then having those discussions with,
not just family members,
but outside advisors and bankers
can take it to the next level, right?
Estate planning.
So I'm gonna use the estate planning in a real general term.
I'm an extension guy, right?
So I got enough knowledge to hopefully not be dangerous,
but maybe to be informative.
I'm not an estate attorney,
I'm not an estate tax planner,
but I've certainly been at that kitchen table
or been on the phone with people that are in this process.
So in my role,
this is the things that I think are important
and if you talk to a tax or a legal professional,
they're gonna give you a much more, much more specific list.
So this is the entry level for me
in a technical assistance role.
When I come to the table with people that are saying,
"We gotta start working on this concept of succession
or transfer or sale."
What's important for the current owners?
Well, first of all, you gotta develop your vision
and your goals for the future.
If you're a husband and wife team,
your partner, your brothers,
you gotta talk together
and you gotta figure out what it is that's important,
because those are the things that are gonna start
to set this process in motion,
and they're gonna be sort of the guide rails, so to speak,
on what you wanna see happen
or possibly draw some lines in the sand
of things you can't see happen
or maybe when you've crossed like a timeframe.
Next, determining your future needs,
income, housing, basic needs.
This gets mostly into personal living,
but the assumption that if you're living on a house
that's on a property with an active business,
hmm, that's getting into interesting situation.
What's gonna happen for the future owners?
Will you still live in that property?
Are they going to want to live in that home?
In either situation it has to be accounted for,
for the acquiring party
to have enough money to live someplace,
potentially, or for the exiting party
to have a future residence or the means
to live where they need to live.
So, you're thinking about your retirement budget
and you're thinking about some of those things
like medical planning that you weren't thinking about
in your younger years.
So you can really understand as an owner,
what you need to get out.
You're gonna organize the information, right?
Resources and assets.
Try to figure out what you own,
titles, get those things in order for property,
debts, obligations,
I don't generally do, you know,
I don't see people do professional paid appraisals
right off the bat.
Often in my role as an extension business person,
we can do evaluation on business property
from a management perspective,
that's not something that's gonna get stamped
by a licensed or certified appraiser,
but it's good enough to get people started.
We get you in the right ballpark.
Do you got $500,000 worth of stuff that's paid for?
Do you have 3/4 of a million?
Do you have $1 million worth of stuff?
You at a level where you may start
to push on thresholds for, you know,
federal tax exemptions wherever they are
at certain points in history.
So we can do some of that,
and you can certainly do some of that on your own
before a professional gets involved.
And then another basic thing that's important
for current owners obviously,
is getting input from the family members.
If we're dealing with a business family dynamic here,
we gotta start talking about both family stuff,
family property, and business property.
And if we're talking about just business,
we still are getting input from family members,
certainly on if there's other people that
had an expectation of being involved in the future business.
But let's be clear, like right off the bat,
do they have an interest or a need or a want
or an expectation to be involved in the decisions?
At least giving their input
so that the current owners can make decisions.
So a real basic starting point, right?
Get your needs in order,
get some of your records in order,
get your resource assessments in order,
and get your family in order
if there's more people involved.
Family communication, right?
Taking it to the next level,
getting everyone's input,
or attempting to get everyone's input.
I've worked with families where the senior owner
didn't necessarily get along very well
with one of his children,
and it became clear
that the transfer planning really couldn't go forward
without getting,
without sharing information back to the children.
And this individual actually cut videos, cut these,
we cut these 40, 50-minute videos
where the owner just basically talked
about what was important to him, his wife,
and the future of the business.
And it wasn't even an invitation to say,
"Hey daughter, I want your input."
It was just,
we haven't talked in years and I need you to know
where I'm at and what's important to me,
because I'm gonna be making some pretty serious decisions.
So you got this idea of getting people's input,
sharing information and figuring out, honestly,
are you asking for people's input
or do you just need to share what you have to say?
One of the things that can be really difficult
for the exiting owners, the parents often,
is there are difficult decisions to make.
And granted, if you've had children
and if you've kind of worked your best to support kids,
sometimes people are waiting for the feedback
from the children to guide the process.
And I've often seen that as a real sticking point
when the current owners haven't really owned their,
their responsibility to make decisions to move,
to move it forward.
So difficult decisions to make,
communication needs to continue.
The next generation can often find it pretty difficult to,
to wait.
If this process doesn't show action, like I said,
it could take years,
but even the idea of having progress
where people can communicate, it can drive,
it can drive the younger generation nuts.
It can also drive new parties nuts
if they're thinking this is not going anywhere.
So I think that's important just to keep in mind that,
hold on one second,
I'm just gonna do a little clicking here.
Okay.
It can be difficult
to be stuck with difficult decisions,
not be necessarily making progress or maybe,
but knowing that other people could be frustrated by that.
Productive family meetings.
No different than business meetings with employees.
How do you set up the framework?
How do you move this thing forward?
Okay, values.
what's important and why?
I'm gonna go through a couple examples
of things I've seen
and how people have had different perspectives on that.
At the end of the session, I'll send some,
I'll put some links in the chat and people can email me.
We've got a couple worksheets
and often in my early meetings
I'm either giving people worksheets
if I don't think I'll be back again,
or we're just having these conversations
and I'm asking questions like this.
What's important to you about the farm today in general?
Some people will get right into the business
and how it's important to have a, you know, great business.
Other people will say things like,
"Well, I just,
it's really important for me to look out my back window
and not see a parking lot." Right?
If you've got forested land or meadows, whatever it is,
you're gonna get so many different opinions from people.
And I encourage you to start really big like that.
Like what is important about this maple operation
for you today?
What are the hopes over the next 10 years?
I've had a lot of elder farm owners come to me
and say, they've got a certain date in mind.
You know, I,
I intend to not be involved in the farm
by the time I'm 75 or 70.
And they've got some kind of clear timeframes going on.
So thinking about where you're at in that timeframe,
in being being 45 or 50,
and setting up buy/sell agreements
is different than being 70
and kind of thinking where you'll be in 5 years.
What are the things you want other family members to know?
Back to those things I said before, right?
There are things to be said,
and there's also time for listening,
if you've got
to facilitate this kind of ongoing family process
and believe it or not,
you're talking about a business legacy,
but you're certainly leaving a family legacy,
especially when you start moving around property ownership.
Like it or not,
there's gonna be people that they're gonna have
to live beyond you and you wanna be thoughtful.
I think about what you leave for them both materially,
but also that that dynamic of,
you know, not everyone getting what they want,
but the dynamic of people sort of understanding
where other people are coming from.
So let's look at a few more of these values, right?
I know people where the idea of a paid job
for that maple business, that's an important thing, right?
And that's a real important factor
in the whole decision making.
And then for others,
maple may be a little bit of a sideline,
maybe more of a lifestyle or a hobby,
based on the scale of the business.
So we've got kind of two opposites there.
Paid job, lifestyle, hobby,
very important to get that cleared up early on
in the process.
That could set a certain trajectory for the succession
or potentially sale or exit.
Okay, land ownership,
can be critical for collateral for borrowing,
can be critical for long term security
for people thinking that, you know,
they're gonna be there on the property forever.
For others it's just access to land.
It may be rental agreements,
may be long term lease,
so two different distinctions there.
Land ownership has a certain factor
or certain value in this.
And then we've got just access in general
for people that potentially want to operate
but don't necessarily feel like they need to
or maybe can't own the property outright.
We got decision making control.
People love to have decision making control.
And then there's this concept of teamwork partnerships,
multi-member entities,
and let's understand that dynamic as well
and understand where you think you can play
into either one of those.
And then I mentioned before, business and family, right?
Two different things often interwoven there,
either with intergenerational items
or just the idea of a single business owner
that's got a spouse or partner involved
in either the estate planning
or involved in the idea of long-term family planning,
inheritance, things like that,
wills and testaments.
All right, so what could go wrong, right?
I don't know how many of you have sat
through other business presentations
where we talk about the five Ds:
death, the disability,
disaster, divorce,
disagreements is like the softest one of those, right?
I think the first four are the ones
that can be difficult, emotionally for people.
Often in, in most cases,
a lot of these can be difficult to plan.
They can come up unexpectedly
and they can have massive impacts on ownership,
on relationships.
And let's face it,
they can have drastic impacts on ownership.
So, as you're going about transfer planning,
as you're go going about legal planning in general
for a business, these are the five Ds, right?
Be aware of them and then ask yourself,
how likely is this risk?
How likely is it that this risk can occur to me?
How significant could it be if it were to occur to me?
You know, are we protected?
And this planning process,
transfer planning is the recognition that,
well, the big one at the top,
the death, like death could happen,
disability could happen as people age.
Is this business positioned to be available
to somebody else?
And the recognition that, you know,
if you're the owner, we want your input now
when you're thinking clearly
if it's gonna be about the direction of where this is going.
All right.
And then we've kind of thought about what's going
on with the likelihood of this risk
and then what are the steps needed to manage this,
and talk a little bit about some of the legal frameworks
that certainly people hear about and are relevant
for transfer planning.
But across the board, right?
Legal agreements, insurance, again,
just family communication,
people knowing what the expectation is,
knowing what the intent is
can often be very important.
All right,
that's a little bit on the exiting owners
and now we're gonna look at the future owners,
acquiring parties.
What is it that they need out of this planning process?
They often wanna know the business situation now.
They really want some clarity on records,
profitability, financials,
what is this thing that they're considering?
Workload I think is another real big factor,
especially inter-generationally here.
We've got people in different ages
that have a different mindset
on how much work is appropriate.
Also, if you've got people with different family statuses,
they have different ability to put in hours, right?
So young, I won't say younger generation all the time,
let's call it the acquiring parties.
What's the business situation now?
What are the business inventories?
What is this business?
How much equipment is there?
How much did this equipment cost?
If we're talking about buying in,
what is the value of these things?
Market outlook, a huge factor.
Earlier I said that the business model of 10 years
is not necessarily the business model of today.
So that market outlook and the feasibility plan
for this business is very important
for that next generation
that's gonna be stepping into ownership.
And then property ownership outlook really can't be ignored.
This is where the rubber hits the road often
where people are saying,
I wanna buy property or I need to have collateral.
I'm thinking about making improvements in this property.
Nobody wants to make 20-year improvements on a property
that they don't think they're going to own.
Those are some of the factors that can go into this
from the younger generation,
the acquiring party saying,
I'm interested in this,
these are the things that we gotta talk about
for me to know if I can step forward
and negotiation or structuring some sort of deal.
Future farmers gotta have a plan, right?
So, do they have the skills?
Can they step in and manage this 10,000 tap operation?
Can they step in?
Do they know how to manage websites, online maple sales,
all those dynamics?
So you've got skills,
potentially a training plan.
I always ask the younger generation,
what's their professional development plan?
Like how do they expect to acquire enough information
to move into the business and move the business
to where it maybe needs to be again in 10 years?
Readiness to take ownership, both from a work perspective,
but capital access.
Do they have the money that it's gonna take
if there's gonna need to be a buy-in
or even just to maintain the property?
And then if they're coming from situations
where they've had wages,
are they prepared to move into ownership of a,
called owner-operated business
where they may not be getting a paycheck.
It's a different format,
how you recoup or you know, draw value,
draw profits out of a business.
So those are really important factors,
especially for that younger owner or that entering owner.
Okay, so big picture, talked about being an owner,
talked about what that next acquiring owner
may be interested in.
And transfer planning certainly wouldn't be possible
without other advisors.
So, who are they?
Facilitators, like myself,
might have someone who's clearly a third party,
knows something about your family,
knows something in my case about maple and farm finances.
Someone that can convene the meeting,
someone that can establish some homework
or manage some information back and forth.
That certainly, there's a value in that.
In some cases, mediator counselors are needed.
You need other advisors,
especially when it gets into heated communication
between family members,
potentially conflict may come up.
This is not not uncommon, not uncommon,
especially beautiful mountainside property here
with a couple family members
that are not into maple sugaring.
Believe me, the opportunity for a mediator
to help kind of smooth out expectations
for what happens to the future value of that property
is a real deal.
Legal professionals.
In a second, I'll give a little bit overview on legal,
but clearly we're talking about business entity formations.
So you're either in sole proprietor or LLCs,
S-corp, C-corps, those are the business entities.
Then we move into the instruments of moving money,
moving value, moving ownership.
Lawyers certainly involved in operating agreements
and transfers that include those.
So we got legal professionals,
and then last here, tax professionals.
Super important, it's super important for taxation.
And I'm also gonna throw in elder care,
call it, elder care financial planners,
certainly I know it's there.
I've been to meetings enough of 'em
and I've even, I can't remember the the specifics,
but the idea of understanding the dynamics of money,
taxes, legal agreements,
when it comes to estate planning is gonna be essential.
It's essential for the exiting owner
and it's also essential for the acquiring party.
If you've got an ownership of a business
and you've been in denial of federal taxes
or you've been strategically pushing off on capital gains,
the future acquiring party is gonna be implicated
in the outcomes of that, potentially, right?
So we've gotta be able to connect those dots.
It's not just about trying to pay the lowest amount
of taxes for the exiting owners.
The younger generation here needs a viable
starting point too, right?
So we've gotta,
gonna have to balance some of those trade-offs
between those different parties
and then professionals are gonna be,
I've found them always necessary in,
not just planning but certainly implementation
when the decisions have been made
and it's time to actually enact certain agreements,
we need those specialists
and they can be a big part of it.
Doesn't mean they need to be there, you know,
day-in and day-out,
but know that they're gonna be valuable to the process.
All this stuff is about planning, right?
Thinking about values, getting assessments,
inventories, values, getting people together to talk.
So we're talking about all these things to plan.
Theoretically, right, you wanna have some outcomes,
you wanna develop and execute formal agreements,
but I just wanna make it clear that it,
you may be ready to go right off the bat,
it may take a period of time depending on your ownership
and depending who that other party is coming in
to be ready to actually make decisions and then enact them.
So this is gonna be a really quick overview,
'cause I'm not the attorney here,
but some of those core documents or tools
to execute, right?
Wills need to be in place, at the baseline.
Then we start talking about trust planning,
just a couple examples.
Revocable trusts,
living irrevocable trusts,
joint tenancy upon survivorship.
You know, there's different legal instruments
related to transfer of ownership
and understanding when that happens.
Gifting, mentioned the attorneys
or the tax preparers earlier,
if there's gonna be incremental gifting
over 10 or 15 years or 5 years,
working with tax professionals on that.
Business entities,
we could talk about a little bit if people have questions,
but different structures and different business entities
to bring in different members,
certainly tools here, buy/sell agreements.
These are just a couple really quick tools
to understand that they're out there.
And what I wanna close by saying is that
when you start the transfer planning process,
I don't think anyone should be tool-oriented.
You shouldn't be asking yourself,
what legal tool am I gonna use?
Is it an LLC?
Is it a trust?
Really what you wanna be able to do is
start those goals and then hand those things
to the professional,
say, these are our goals,
these are our kind of criteria,
what's the instrument?
And then the professional guidance can often say,
yeah, a trust may be a good option here.
Or they could say, no, no, no that's not really,
that's not the way we're gonna do this.
This is just a single session, hour-session.
We do have a short course that I'll be teaching
that starts at the end of September.
That's gonna be four sessions, 1 1/2 hour each week,
that's gonna basically take this introduction
and move it to the next level
into those different planning steps.
So I want people to be aware of that.
And there's a couple prompts while I read some questions.
So Nick says,
"Is there a marketplace for available land operations
or equipment?"
Let me read all of these.
"Is there a marketplace for available land operations
or equipment, best practices,
top pitfalls and tips for the acquirer?"
That's a good one.
"Is it best practice for the acquirer to get a broker
or an advisor?"
"Is there a marketplace for available land?"
I don't know if you're actually saying
is there an actual platform
and certainly there's real estate listings.
I don't know that there's anything specific for maple sales.
I certainly see like, gosh, is it land vests or something?
They have like the huge properties.
Other people please feel free to chat in some answers here.
So what I would say though, Nick,
is I don't, aside from the technical platforms,
knowing that the ownership profile of sugar makers
in Vermont is probably well over 55,
there is land operations and equipment that I'd say
is more and more likely to become available or to be,
you know, suggested for sale or transfer.
So just the demographics alone lead us to believe
that there's just a lot of these,
kind of pending situations coming up for owners
as they get older.
Best practices, pitfalls, tips for the acquirer?
Well let's see, for Maple,
I'd say it's always valuable to get experience
in multiple places.
One of the best things for a family farm transfer
is for children that have left the farm
for a period of time, right?
They've left the farm,
they've developed skills elsewhere,
they've been trained or mentored by other managers,
other than parents,
and they've actually intentionally come back.
So that's like a little bit of a,
the family thing I would say is,
get away from that place for a while and then come back,
come back for all the right reasons.
Not stay there because that's what you,
that's what you know,
I'm not saying there's anything wrong with that,
but it's often very successful
when people come back for specific reasons
and they come back with new skills.
I think pitfalls for the acquirer,
I don't know,
honestly I've seen a lot more,
I've actually seen a lot more honesty
from people looking to acquire properties,
in the sense of like,
they kind of put the existing owners
not on the defensive,
but they're pretty clear in saying,
well, I need to know what you need.
I need to know if I need to buy this,
I need to know the status of the business.
So often the acquiring party is
asking really the right questions
and sometimes it's the exiting owners
that are kind of stuck because they've owned
and operated it for 20 years
and they've never really had to answer those questions
before to somebody else.
It's never been necessary.
So I think it's just key for the acquiring party
to be honest and ask questions.
Yeah, and I'm not too familiar with parties
using brokers or third parties.
Certainly advisors, like I said,
like we've definitely dealt with people
that are farm-seekers in our programs.
Maybe they've had management jobs on other maple
or farm operations and it's clear they're looking
and we've been involved with them,
because maybe they're already in our network
and they're working on feasibility plans
for maybe like a land trust property, things like that.
So it definitely doesn't hurt to have an advisor,
in the general sense.
From a broker perspective,
I don't have tons of experience on that.
[Student] That makes sense.
That actually answers one follow up there.
The, for the land piece,
yeah, so for the the land piece,
it makes sense to use the existing ones,
but I am more interested in how,
as a potential acquirer, one would find the opportunities
of people willing and interested in selling.
So, do you act as a information source for them?
Yeah, I certainly,
I see a lot of stuff come,
as an extension person, we see a lot of stuff
come across our desk.
What I don't do,
is I try not to get in that kind of role
of kind of being a broker,
especially with like private property transfers.
But yeah, being, yeah,
having a network, you know,
let's start off that:
having a network, right?
We do hear of things for sure or we know,
like Dave says,
yeah, well like the Maple news, right?
There's a publication where things are gonna be,
you know, published in a classified.
So, having those connections.
And then the other thing about the network,
I would say,
from my experience in the Maple community,
it is a relatively small community and then it,
and there's opportunities within the producer associations.
There are member associations in Vermont,
let's say even for me,
I've been involved with the state association
and I've gone to a couple county meetings.
Some of you, if you're producers,
you probably have more of a,
maybe have more relationship at the county level.
Getting involved in those networks and those associations,
even if you're not currently sugaring,
I think is probably potentially the best way
to have that kind of inside scoop,
participating with those groups of people.
And especially I'd say the maple community.
You know, you may be working for a sugar maker,
you may volunteer, but gosh,
it's fair season right now
and I've got a whole bunch of volunteer requests
to spin cotton candy or to do maple samples
at upcoming fairs.
So I'd say getting involved in the community
is like probably one of those anchor ways
to just know what's happening.
[Student] Makes sense. Thanks.
Yeah, great question.
Okay, keep 'em coming in the chat or,
okay, Dave's got one.
Could you comment on the advantages or disadvantages
of leasing a sugar house or sugar bush
rather than transferring them to the next owner?
Okay, I'll give some ideas and chime in here
if something more specific comes up.
I know of maple owners that have family members
that potentially could be,
could be getting groomed to take over the business
and the property.
The, generally existing owners,
and this gets into estate planning,
that real estate is like, so valuable.
And this depends again on the dynamics
of your estate planning.
Often that ownership of property is something
that can often wait till the end and,
or needs to wait till the end for certain reasons.
And this may be coming into the, you know,
the estate planning inheritance
of how the property is intended to transfer.
So in a lot of cases, the exiting owners don't,
or maybe not, is not advisable to give up ownership,
and there's a situation where they may
need to set up a lease.
Two reasons why you may need to set up a lease.
Let me just start with the sugar house or sugar bush.
If you've got a a party there, family or not,
that's interested and you're unable to transfer ownership
to them immediately,
they're gonna need some sort of security, right?
This is the idea of that younger generation
or that acquiring party getting kind of antsy
and feeling like, how am I gonna,
how can I invest my passion and my time into this thing,
unless I have some security?
So, a 10 or 20 year lease could potentially
be the mechanism to show to 'em,
hey, we're serious about this and it's formalized, right?
And that's the key.
It's not a handshake agreement, it's formalized.
We have heard stories and I'm sure some of you have,
about handshake agreements or assumptions
of access to property.
Someone dies or is disabled
and other family members take control of the estate,
and the people that thought they were gonna
be having long-term access to the property,
the sugar house, don't anymore.
And that is the unfortunate reality of family members
that maybe have disagreements,
but it's also the unfortunate reality
of informal agreements or non-formal agreements.
So there's one reason, right?
So owners need to,
they can't sell, so they've gotta set up a lease.
Acquiring party needs some sort of security,
and so it's in everyone's best interest
to set up something formal.
Another example I've had, again,
family members where the parents are saying,
okay, this, I think this person could
be potentially an owner.
I don't really want them to think
that we're gonna give this place to them.
So this is again,
in sort of this weird incentive,
negotiation like preparatory process of saying,
well, let's draw some lines here
and let's see if we can have this other party
start to rent the property,
rent the taps, or rent the sugar house,
and it serves a couple functions.
A, it starts to put the business pressure
on that acquiring party to run a business
that can actually afford these things, right?
If they can afford lease payments on a regular basis,
if there potentially needs to be a buyout,
let's assume that they can have a business now
that's positioned to pay debt service
if they actually have to mortgage a portion.
Not every family can just, you know,
give the property away.
And certainly if some of you don't have family members,
you're expecting to sell, right?
You've been building value and the idea is,
I've built some value here, I wanna,
I'd like to cash in on that value
and somebody else would love to step
into an enterprise that's been established
and they may pay $50,000, $100,000,
you know, for the ongoing interest of the business,
let alone the real estate that it stands on.
So there's a,
I'm just kind of shooting from the hip
with a couple examples I've seen.
One other popped to mind,
incentivizing, setting up the business for success.
Oh, and then let's say,
if there's different entities involved, Dave,
if in the process of planning there's been a decision
to hold the real estate and the ownership
of the current owners and perhaps form an LLC
that the current owners and the acquiring party
are shared, have shared ownership of.
So let me give you an example of a mom, a dad and,
let's have a mom and dad and a non-related family member
that's been working with this business for a while
and the decision maybe is made that the mom and dad
are gonna split off the real estate into one LLC
or other sort of entity,
and they want to bring in that employee as a partial owner.
And so they establish a separate LLC,
that's 33% dad, 33% mom, 33% new entrant.
And here's a situation where this LLC now
is gonna have to interact with the landowners
and there's another mechanism or an opportunity
for there to be split entities
and then leasing just becomes
this transactional formal process between multiple entities.
So I'm just hitting you with a couple things I've observed
and it's, you know, really case by case, but they're tools.
These are different tools.
I could take another question,
but it's definitely fine for us to wrap up here.
I told you about the short course.
Oh, here's one other thing I wanna put in the chat
before people go.
UVM, Zach Smith, one of my coworkers,
he actually is doing some transfer planning,
like resource assistance.
And so I'm gonna put this link in the chat box.
If you're interested in the short course, that's great,
that's starting in a month.
But here's another cool option,
Zach is basically just helping source resources for people.
So if you're interested in succession planning,
you can put an inquiry in through this form for Zach
and he may actually be able to pull some literature
for you that's a little targeted.
And then I got one other thing I wanna share.
We've got some worksheets of our own for exiting owners
and entering owners that are great ways
to prep for the process.
And you can find a lot of these online,
if you look up,
I don't know if there's much on maple transition,
to be honest,
but if you look up agricultural
or forestry succession planning,
that'd be my keyword search, you know, extension,
which is great cause that's public information,
extension, forestry succession planning worksheets.
And you can find a number of these kind of question
and answer sheets.
But this is really with the starting point
that I use if I'm on on site
with the owner working through it.