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Family farm business ownership succession

Your Farm Business

July 15, 2011
From Wayne Schoper and Rich Baumann , South Central College

(Dr. Ron Hanson of the University of Nebraska, Lincoln, specializes in dealing with the positives and negatives of families who farm together. Often he gets called upon when farm families are having difficulties. This information is from the third article Dr. Hanson wrote for Minnesota Farm Business Management education programs a few years ago.)

When transferring the actual ownership of a family farming operation to the next generation (i.e. especially if the farm has been in the family name for several generations), the entire succession process itself can result in a lot of emotional stress among the family members involved.

There are many issues which confront family members in working through this transition in a reasonable and expedient manner without disturbing the daily operation of the farm business. These farm ownership succession issues must eventually be discussed by the family members involved and resolved to everyone's agreement to allow for a successful transition of ownership to the next generation.

Role of the Dad Issue: Dad wears two hats in the family farm operation (i.e. Boss Hat and Dad Hat). This presents a difficult situation for any father since he must know when to be wearing which hat or when to change hats. The adult children working on the family farm must make this distinction between the Boss and Dad roles that the father plays in the farm business.

The Issue if Mom Outlives Dad: Another related issue is the fact that Mom many times outlives Dad. What if Dad dies unexpectedly or before retirement? Will Mom operate the farm "as if Dad were still living" or will Mom start making the changes she always wanted but Dad would not allow.

The "Who is Family" Issue: Who are considered the "real family members" in the farm family business? Are only the "blood related" family members the ones that are to be included in farm business decisions or even the chance for farm ownership? Are the in-laws considered or even treated as "family".

The Issue of Controlling Parents: What is the behavior expected by the parents for the adult children working in the farming business. Do the parents want these children to be just puppets or independent thinking adults with their own ideas? Is it the parents' dream for the children to return back home to the family farm or is it the children's dream to farm with Mom and Dad? Often one or both of the parents will also have the attitude that, "You can buy the farm, but remember I still own it."

Transfer of Ownership Issue: Who will end up owning the farming operation when the parents retire? Or will the parents still retain total ownership after retirement while the farming children keep doing all the work? When will this transfer happen or do the parents plan to retain total ownership until their eventual death?

The Non-Farming Children Issue: How do the parents treat all of their children fairly and equitably in their estate plan? This is a rather delicate issue because often times parents have favorites among their children. But to avoid the problems of jealousy among these children and the grudges that evolve over time, it is very important that parent's block out their personal feelings of favoritism and devise an estate plan that allows for the succession of the farm to the next generation in a fair and equitable manner. Ironically, most parents try to avoid discussing this very issue.

Issue of a Fair Selling Price: If the parents decide to sell the farm to any of their children (particularly the adult children farming with them), what is a "fair selling price" for the farm property between family members. Working out a fair selling price for the farm that provides the parents with a secure financial retirement but at a price that the children buying the farm can afford as a feasible financial investment is certainly no easy matter

The Issue of a Starting Salary for the Farming Children: Determining what is a fair wage or salary for the adult children working on the farm can be a difficult question facing the parents. What salary amount the parents feel is fair and what salary amount the adult children feel they need for a reasonable standard of living may be not even be close figures to each other.

Summary: It important to have a strategic plan for ownership succession in place for the next generation. These are some rather sticky and emotional issues to discuss among the family members but avoiding these issues could have disastrous consequences later. Parents must have a clear vision for the future of their family farm business and then be willing to discuss their ideas with the children who plan to return back home and eventually take over ownership and control of the family farm from them.

 
 

 

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