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ith the passage of a $7.5 million exemption from the state’s 9 percent estate taxes on agricultural property this Legislative Session, Oregon nursery owners were recently given a strong incentive to

keep the “family” in family-owned businesses. The exemption applies only if the property is passed to a family member and remains in agricultural production for five of the next eight years. Jeff Stone, the OAN’s director of government relations, explains the importance of pursuing this legislation. “The enthusiastic sup-port we received from Republicans and Democrats alike speaks to the importance legislators placed on passing on the nursery or farm from one generation to the next. Estate tax reform was a pri-ority for the nursery industry, and I am pleased that the association was able to deliver a significant victory to our members.” Now, more than ever, succession of nursery ownership to the family remains an attractive option, but it is not without its pitfalls. Like any business transaction, the transfer of assets (or operations) between generations is best handled with a plan and a strategy. The owner contemplating retiring after an orderly transfer of the business to his family with tax protection under this new law must, at the very least, prepare his family for a minimum of five years of operations. An owner choosing to gift his assets to his family faces a lengthy process constrained by federal limitations, and an owner choosing to “take the money and run” faces huge tax burdens

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Handing over the family business

Plan ahead To Transfer WealTh and haPPiness

By Don Anslow

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Austin Van Meter is only 13 years old, but his father, Ron, already has a succession plan in place to ensure a smooth transition of the family business, even if Austin opts for a different career.

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and uncertain real estate selling cycles — not to mention the emotional and financial impact upon his successors. The formulation of a successful plan — sooner, not later — is vital to preserving family assets. But as Ron Van Meter of Van Meter & Son Nursery in Boring, Ore., discovered, family assets include far more than financial capital. Ron is an active participant in an ongo-ing succession plan. The emotional health and happiness of all parties are a vital consideration in such plans. He should know; he has seen succession from both sides. Ron’s father, Morris, started the nursery over 35 years ago in the fam-ily’s backyard. It grew over the years to become a 550-acre, highly efficient business — very different from its humble beginnings. In 2004, Morris and his son started to discuss how Morris would retire, and then in 2005 he did. One year was insufficient time to execute the transfer of the business without unnecessary hardships, not the least of which was giving up school. Ron explains: “One of my biggest regrets is only being able to complete two years of college because I came

back to work in the family business and could never go back. I would have been a better partner to my father and our associates if a process had been in place for the transition between my father and myself.” With insight gained from that trying experience, Ron sums up the bottom line for a good plan. “One goal is that you maintain your friendship during the process,” he says. Clearly, Ron understands that succession is a two-way street. “It is my responsibility to see that [the next] succession is done in such a manner that the long-term ramifications are beneficial to the one transferring and the one receiving,” he adds. During a recent tour of Van Meter Nursery, a visitor mused that while Ron’s 13-year-old son, Austin, worked hard at trimming an endless line of grafted conifers, the foresight of Ron’s plan was striking. Yet Ron has already implemented a succession plan with the assistance of Doug Sippel, presi-dent of Titan Financial Associates.

True wealth planning Sippel approaches the process by

first helping clients and their families understand the value of their assets. Sippel notes that when asked to define their assets, most people’s answers usually include the expected: Business, real estate, stocks, cash, etc. But when he poses a simple question: “What is your most important asset?” the answers are far different. “If you have never asked yourself this question, you should,” he says. Sippel reports that people’s answers usually come down to: “my health, my family and my integrity.” He points out that there are four types of capital which make up what he coins “True Wealth”: • Financial Capital — Monetary assets with a dollar value. • Human Capital — Includes val-ues and virtues that prepare heirs to manage business with character, ethics, morality and integrity. • Intellectual Capital — Knowledge, training and experience. • Social Capital — Things you cannot keep: charitable gifts or taxes. Sippel’s True Wealth concept does not overlook the obvious financial requirements addressed in traditional

BUSINESS SUCCESSION

Ron Van Meter’s college education was interrupted to take over the business his father started, and he wants to give his son a chance to pursue his dreams beyond the nursery before deciding whether he will accept the responsibility.

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estate planning, but additionally pro-vides “tools” for the optimum transfer of wealth, particularly the other three less tangible capitals. The most sig-nificant tool is the drafting of a Family Financial Philosophy. This document defines financial independence and your family’s capital legacy according to your expressed values; it governs the planning and implementation pro-cesses and provides a road map for your successors like no other docu-ment — including a will — can. Other tools include: • Developing a family communica-tions system. • Teaching young heirs the values and responsibilities associated with financial wealth, and creating mentor-like relationships in trusts or LLCs. • Transferring authority and respon-sibility to young heirs as appropriate.

Family involvement: communicate your wishes Sometimes, without meaning to, parents can allow the succession plan-ning process to become something they do to their children rather than with them. “When appropriate,” Sippel explains, “the children — even the grandchildren — should be included in the process. Think of your job as a manager rather than an owner. Good managers do not consider the assets as their own, but (know they are) charged with the responsibility to be good stewards of the assets under their control. Part of that job is building a good warehouse to hold those assets. This warehouse is the people who will be given the job of managing the assets after you turn the job over to them. So focus on prepar-ing your heirs with the character, integ-

rity, self-confidence and ethics to be excellent stewards in their own right.” In the case of business exit plan-ning, where time constraints for tax, training and other considerations are paramount to the success of the busi-ness under the young successor’s lead-ership, Sippel points out that all too often time runs out — or at least runs too short. “There are cases when the parent waits too long to communicate their real desires, and children get sent the message that mom or dad is going to be in charge until they die. Even if this is not the intent, it is communi-cated through actions.” In his experience Sippel has observed that such miscommunication can lead to successors (or key employ-ees) being ill-prepared to assume effective leadership of a family busi-

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ness. Other common issues are the unneeded diversion of a young person from a different — and possibly more appropriate — career because they feel unsupported in pursuing it. Or, as with Ron and his father, a young person can be interrupted in the middle of an edu-cation. In any case, poor communica-tion, the lack of a plan and the absence of a philosophy make continuity of good stewardship a needless struggle. At Van Meter & Son Nursery, Ron operates his business with a keen sense of such stewardship and with the values and discipline to achieve success on a variety of levels. Business, including monitoring of succession parameters, is governed through a strategic plan with 1-, 5- and 10-year goals, which are monitored monthly. On a bright summer morning, a recent visitor noted not only young Austin Van Meter’s diligent labors, but also the well-used motocross motor-cycle standing proudly in the back of his father’s truck — Austin’s cycle as it turns out. Clearly the young Van Meter has interests beyond plants. In fact, he is an avid, and rapidly advancing, junior motocross rider. Could his life’s passions stray from receiving a business that his father so carefully tends? It may not look that way on a day when father and son are engaged in a thriving business that brings them together in a healthy enterprise that serves them both well on ledgers of financial and human capital.

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However, Ron Van Meter acknowledges that it is a distinct possibility. The presence of such a plan gives Ron the confidence to face the future with his son’s happiness as the prime goal. “If I really love him, I must give him a chance to gain independence and a sense of self-worth separate from me or this business.” But whether Austin settles on a path to — or away from — the nursery, the Van Meter succession plan is designed to remain flexible enough to accommodate such eventualities without threatening his son’s aspirations or Ron’s retirement. Ron explains the rationale under-pinning a sound plan. “If your objec-tive is only to transfer money, then it becomes very selfish,” he says. Drawing on the values of the True Wealth philosophy, he concludes, “It is my responsibility as a parent to gain

the experience and plan for all facets of the business transition. I want my son to be able to stay true to his dreams … and know that he is supported and loved in any decision that creates a healthy life for him.” Ultimately, no enterprise’s future is a sure thing. But with the help of Oregon’s more generous estate tax laws, an understanding of Sippel’s suc-cession planning principles, and with a commitment — like that of Ron Van Meter — to an heir’s happiness, the future for Oregon’s family owned nurs-eries looks bright.

Don Anslow is a Portland area free-lance writer. He can be reached at (503) 819-4460. Doug Sippel of Titan Financial Associates contributed heavily to this story. He can be reached at (503) 629-0810 or [email protected].

BUSINESS SUCCESSION

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