Can We Make It Another Generation?

By Greg Booher, Farm Business and Production Management Instructor, Lakeshore Technical College
Thursday, August 14, 2008 8:47 AM CDT

Farm families have been transferring farm ownership for generations. Many families have successfully farmed the same land for four or five generations and even longer. But over the last number of years, it has become increasingly more difficult to work the next generation into farm ownership.

Discussing farm transfer can create a great deal of tension within a family. Although it’s not rocket science, human emotions can run high and family interpersonal relationships can be damaged. For example, I was just back home in eastern Ohio and talked with an old college roommate about their farm situation. He has been farming with his parents since college graduation in 1975 and told me he and his wife don’t own anything but the house they built together in 1978. Their son has also been working on the dairy since 1999 and he too, has not gained any ownership in farm assets. Dad is 76, in poor health, and unwilling to discuss farm transfer. It appears the farm will be given equally among the four children who will give my old classmate the first option to buy the farm at full market price. Market price in the area is around $6-10,000 per acre with about one-half of the acreage actually tillable. Needless to say this situation should have been handled 30 years ago.

So how can we transfer the assets without risking the older generations well being? The age old practice of the younger generation starting out as an employee in the family business is still a good idea. During this trial time, the older generation and younger generation will learn how well they can work together. After the younger generation has demonstrated their interest in the farm and proven their dependability, it may be time to work them into the ownership of the cows and equipment. After a period of five to 10 years, the younger generation should own a good portion of the intermediate assets and be contemplating the purchase of the long term assets from mom and dad. During this time of chattel transfer the farm receipts and expenses are often shared by both parties. This process has proven successful for many a dairy operation. Even though we have been using several of the same tools for many years, I think there are some newer wrinkles farm owners should take the time to investigate.

In the last 15 years many Wisconsin dairies have competitively positioned themselves through modernization and expansion. Several of these mid-sized dairies have or will have offspring returning to the farm and will need to look at their business arrangement options. We have a model for farm business transfer that is time tested but is it obsolete? Not at all but there may be some other tools that will be helpful too.

For example, is it wise use of the family’s capital to sell the same long term asset to the next generation? Rather than financing the older generation’s latter years of life with the sale of the long term assets, why not consider leaving the older generations assets in the business? Profitability farming operations can form limited liability or farm corporations that can pay dividends and rent on the older generations assets thus meeting their financial living needs.

It is an exciting time for agriculture, but also quite trying as well, with farm land selling from $4,000 to $10,000 per acre. Farms successfully transitioning to the next generation will need to regularly discuss these issues and conduct daily operations with an accurate but fluent business plan.

Lakeshore Technical College will be offering a succession planning conference on Jan. 6, 2009. Plans include Dr. Ronald Hanson, from the University of Nebraska who will be discussing Farm Family Business Ownership Succession, and Dr. Phil Harris from University of Wisconsin who will present a talk entitled Business and Tax Planning for Agricultural Producers and Long Term Care. More information will be released as planning continues.

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