Everyone knows that the “family farm” as we have always known it is under pressure in the corporate, marketing pressure cooker in which we all live and function these days, but the real question for farmers is this: Will your family farm continue when you are ready to pass it on?
According to Roland P. Freund, Farm Management Agent at Penn State University Cooperative Extension, the process is difficult, but not one that should breed despair. Five major questions should be asked as you begin exploring the passing of the family farm, Freund said.
The questions are:
1. Is the business viable? To be viable, Freund said, the business, in this case the farm needs to have adequate resources, or equity, including current technology, and the potential to be profitable. If the farm is deeply in debt, there will be problems with viability.
2. Is a family member willing to do what it takes to farm? Freund said if there are no potential heirs working on the farm now, chances are slim that they will want to take over operations later. When there are family members available, Freund said, the parents must make sure they are adequately prepared and equipped to farm.
3. Is your son or daughter assuming the responsibility? Freund states the obvious, that a smooth transition will take place when the next generation on the farm has the experience with the responsibilities of both production and financial management of a farm. When a farmer delegates responsibilities to offspring early on, by the time he or she reaches age 65, the heir or heirs should be managing the farm, ready for it to continue on in the family.
4. Is the farming heir building equity? Freund said children who leave the farm usually go out and build hundreds of thousands of dollars in equity from their homes, businesses, retirement accounts, etc. The farming heir, he noted, must build at least that much equity in the farm business if he or she is to survive on the farm. Freund pointed out that farming is a capital-intensive business.
5. Lastly, ask how much will non-farming heirs inherit? Freund said unless estate planning is done and sweetheart wills are changed, most non-farming heirs will share equally in all the assets of the farm. This could leave the farming heir with diminished equity to use in growing (no pun intended) the farm in the future. If parents wait until the estate settlement to transfer assets, the family farm business will probably not survive, Freund warned. Failure to build assets in the hands of the next generation of actual farmers is usually the root cause of the farm’s business failure.
Freund’s advice is that farmers seek professional advice when looking to pass the farm on to a working heir or heirs. Key people to consult are accountant; income, estate and gift tax adviser; banker; and management adviser. The hope is that your family farm can remain just that. Give it some thought.
I’ll see ya.
An Iowa native, Peter Graham has been a rural newspaper editor for 40 years. He currently edits a twice-weekly paper in Western Iowa. You can contact him at (712) 642-2791 or [email protected] times.com.