Farmland Transition

Farmland Transition

Depending on your source, it is estimated 40% to 70% of family farms will transition over the next 15 years, and 80% of the rented farmland in our country could be owned and controlled by those who didn't grow up on the farm or operate it themselves.

While there are many causes for concern in these statements, you should be asking yourself if you have done all I can to ensure your farm business survives. In some cases, it will not because you have no successor within your family and you have chosen not to seek one from outside.

In other cases, the succession is unsuccessful because of two main factors: failure to plan or communicate. I have experienced the pleasure and heartache as I sit with farm families as they attempt these transitions. In my experience, there have been several pitfalls.

The folks at Ranching Management Consultants have an excellent presentation on these issues, but I will deal with the ones I have encountered due to space limitations.

“Parents don't owe their children a job, and they don't owe their children an inheritance. Conversely, children don’t owe their parents their future.”

First, all generations have to be on the same page whether they are part of the farming operation or not. Parents don't owe their children a job, and they don't owe their children an inheritance. Conversely, the children don't owe their parents their future. However, parents do owe their heirs clarity of the estate plan.

The estate plan is where things often get complicated. Before the next generation gets involved in the business, roles need to be defined, written down, and agreed on. This will go a long way to avoiding future conflict. In addition, both parties should agree to revisit this document periodically. Roles can and should change over time.

Parents need to remember as they age, they need to plan for what's next. They can't retire from farming. They need something to retire to. They also need to clearly define retirement needs, including money, control, and role. In one scenario, they may move from the manager to labor or from owner to labor, or maybe they leave the operation entirely. Too often, the roles of owner, manager, and labor are not clearly defined.

Remember, parents can retain ownership and yet have no day-to-day role in the business. This idea is often a foreign concept on the farm. The parents may retain ownership and derive a portion of their retirement income from the rental of assets by the farm business.

When one or more children return home, communicate all plans and expectations to all of the children. Too often, children return and believe they are investing sweat equity. Then, upon their parents' death, they find out the off-farm siblings own the sweat equity they thought they had earned. Parents need to remember that fairness is not always equal.

The children that have returned to the farm business cannot afford to buy assets from their siblings at the appreciated value that they have helped to build. Parents' failure to address these issues before their death not only can destroy a farm business but can also cause their family to implode.

So whether you are the parent welcoming a child back home or returning home, remember two crucial concepts of farm business succession. Number one failure to plan is equivalent to planning to fail. And second, clear communication of plans and expectations with all children will not only ensure your business survives the transition but so will family relationships.

For more Farm Transitions and Estate Planning information and resources visit University of Maryland Extension’s website.

This article appears in November 2021, Volume 12, Issue 8 of the Agronomy news and the Maryland Milk Moos December 2021, Volume 2, Issue 4.