PRESERVING THE FAMILY FARM

 

 

 

 

 

 

 

The family farm. The face of it is changing, like so many other things in our lives. When Mom and Dad decided to retire, it used to be a no-brainer that the farm would be passed to the next generation and then the next and so on. Things have changed.

In the past, future generations grew up learning the family business and carrying on with it. It’s just the way it was. Blame it on the advancement of technology as well as other factors, but today’s youth have so many diverse choices when it comes to careers that many either do not want or cannot afford to carry on the family farm.

Even the ones that do choose to stay on the family dirt, transitioning it from one generation to the next is more complex than it used to be. New federal and state laws make it almost impossible to simply turn over the land to the next generation without seeking professional advice. Perhaps that is why less than one third of family businesses survive the transition from the first to the second generation and another fifty percent don’t survive the move from the second to the third generation.

According to the USDA, two thirds of United States farmland is owned or leased by someone over 55 years of age. Control of a third of that land will change hands in the next ten to fifteen years. When many of today’s farmers took over farms from their parents and grandparents, plots of land were smaller and less valuable and equipment was smaller and less expensive.

 

It’s different now. Family structures and farms are more complicated. Machinery is bigger and more costly but it gives farmers the chance to work larger tracts of land with less help until later in life. Even though they have the ability to work longer, many are tired. They are tired of fighting grain prices, the weather and the rising cost of seed and fertilizer.

 

This isn’t even mentioning the cost of repairs. It used to be that when equipment broke down, farmers did their own repairs. Now, with so much computer driven technology running the equipment, farmers are at the mercy of a skilled repairman. This can get expensive both in time and money. When you are not moving in the field when conditions are right, you lose valuable working time and repair bills can be through the roof.

So, when it is time to pass on the family farm, the dream may come with some baggage such as complicated machinery to learn, increased acreage to farm and many times, outstanding debt. It gets complicated.

On top of that, when there are multiple siblings, sometimes all the siblings want to take over and sometimes no one does. One solution to this would be to forego the idea of splitting it equally between all. Provisions could be made for those that want to take an active role in the business and those that want to be part of it but want to be inactive owners. Also, there should be some liquidity built in for buy-out options.

Today there are many different ways to keep the family farm in the family and to be fair to all involved. The worst thing to do is to not to take into consideration the wants and wishes of all the heirs. Making partners of the ones that choose to stay on the farm and those that don’t has destroyed many a family.

This is really the tough part. Farmers of our generation are a different breed. They likely inherited the farm from their dad or grandfather and have emotional attachments to the land itself. If their kids and grandkids did not actively help work the land while growing up, that emotional attachment is lost. Instead of seeing the family farm as something personal, it becomes just another asset, to be sold, leased or a variety of other options.

This fact is one of the hardest for retiring farmers to accept. Their offspring has a right to their dreams and ambitions. Just because farming is in the senior’s blood, doesn’t mean it is in that of the next generation’s. On the other hand, land is a unique commodity as Will Rogers so adamantly put it, “Buy land, they ain’t making any more of the stuff.”

Perhaps this quote should be changed to read, “Keep the land……” Whether interested or not, the next generation has to realize that once the land is gone from the family, it’s not coming back. This is a one-time shot.

If the family farm stays in the family or not, one thing is for certain, it requires some planning with the help of some professionals. Some of the farms today were passed down informally without wills or proper legal channels so the farmland itself has unclear titles. Some of this land is only titled under “heir’s property” and even today there can be multiple heirs, sometimes upwards of 100! This translates to multiple headaches.

Fortunately, there is help out there. State Mediation Services, paid for by the USDA, has been used for years to settle disputes between neighbors, lenders and creditors. Even more applicable may be the 2018 Farm Bill which made funding available for state mediation programs to work with families specifically on “family farm transition.” Farmers can access free legal advice.

Some states like Nebraska, Vermont and Arkansas offer classes in land transition. Roger Betz, a state agricultural extension agent with Michigan State University, spends hours with farmers helping them make transitions to the next generation. Unfortunately, not all states are able or willing to provide extension specialists who can spend hours helping families realize their dream land transfer.

Michigan State University Extension offices uses core guidelines when providing assistance with succession planning. They can be accessed here, https://www.farms.com/news/five-steps-to-pass-the-farm-to-the-next-generation-160677.aspx.

What makes this such a gray area is that every case is different. Do you need a will, a trust, other papers? Only professionals in their fields can make sure everything is done right. The worst thing a farmer can do is to do nothing. The second worst is to rely on verbal agreements and handshakes; this is not your grandparents’ day. Sadly, too often talk of succession planning begins the day after the funeral.

Perhaps Steve Hamilton, an advisor with the Land As Your Legacy program through Nationwide Insurance, says it best. “The weakest writing is stronger than the best memory.” If it is not written down, formalized and signed, it will not stand up and be legal. Handshakes and verbal agreements are good until someone dies.

An important thing that every farmer can do when considering passing on the farm is to write a legacy letter which is a powerful letter to future generations containing memories of the farm, how it has been maintained and what your wishes are once you are gone. Include things like when and where you laid tile and other important changes. Although it has nothing to do with being legal, it can provide valuable information to the farm’s successors.

Some farmers shy away from letting their wishes be known to the family simply because it may cause friction. Even so, the biggest mistake in succession planning is keeping secrets.

Farm transition and land transfers are some of the hardest conversations that families face today. Farmers know the rewards, emotionally, physically and mentally, of being connected to the land. They want their kids to know this too although farming isn’t right for everyone. When farm transitioning, the gap between the dream and reality can be heartbreaking.