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Farm transitions: Passing along the keys to the kingdom is no easy task

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Farmers have prevailed over weather events, family emergencies, machinery failures, and more, so what makes transitioning a farm business from one family member to another so difficult? The emotions. Changing over the business is more than signing your name on the dotted line; it’s peeling yourself away from decades of sweat and energy. It’s giving up control.

“They don’t want to see their business run into the ground; they truly want to see their kids succeed. But it’s a letting go of the control, and for some generations, that’s extremely hard to do,” said W.P. Johnson, executive director of the Farm Service Agency in Virginia’s Pittsylvania County.

Johnson spent almost four years as chairman of a statewide farm transition subcommittee, helping to put on workshops that would bring attorneys, CPAs, financial advisers, and estate planners together to speak with farmers about passing on their legacy to their loved ones. Make no mistake, it’s a process often wrought with difficulties, hard feelings, and a need for patience.

But since when has anything about farming been easy?

“When you take over someone’s livelihood — something they’ve worked 365 days a year for the past 35 or 40 years, and say, ‘OK, now you have to give it up and walk away’ — it doesn’t always work smoothly,” he said.

Johnson — who lives on property adjoining his father’s 600-acre farm that produces soybeans, wheat, and hay — has three key pieces of advice for anyone transitioning their farm to a family member or third-party individual:

Start early. Two to three years for the transition to play out is commonplace, but it’s also not unheard of for it to last 10 or 12 years. In many cases, a farmer will let the successor take over a segment of the business one year, then another segment the following year, and so forth. In this manner, the successor, often the farmer’s son or daughter, gets an understanding of each component of the business and what kind of responsibility it entails.

Communicate, a lot. With farmers and experts involved and so many people having a hand in seeing the transition through, being open about feelings and concerns is crucial. “If you communicate well with all of them, you will navigate through the challenges in the best possible way,” Johnson said.

Have a solid team behind you. All of those experts are there for a reason, and their guidance will be invaluable. This kind of undertaking is a massive one — there are attorney fees and their retainers, deed changes, equipment changes, and professional liability, among other things. And while the focus is on the success of the business, a team of financial and legal experts can help to identify different capital opportunities and any tax liability you’ll encounter.

Following these steps can help a farmer let go of the business and trust his or her kids. If done correctly, the level of comfort with the transition can grow.

“There’s a lot of feelings and emotions that happen in this process,” Johnson said. “People blow up, then they have to cool off, then try again. Part of starting early is making your feelings open and trying to work through those emotions.”

“When you take over someone’s livelihood — something they’ve worked 365 days a year for the past 35 or 40 years, and say, ‘OK, now you have to give it up and walk away’ — it doesn’t always work smoothly.”

As sad as it may be, sometimes the process fails. Oklahoma State’s Department of Agricultural Economics gives a rundown of the top reasons a farm transition effort falls short:

  • Inadequate estate planning: “The successful transfer of an intact farm business from one generation to the next is virtually impossible without a carefully constructed plan, and yet farm families consistently fail to create and follow such plans,” the department said in its Farm Transitions Workbook. It’s not just survival of the farm business that’s at stake, it’s survival of the farm family.
  • Insufficient capitalization: “While farmers and ranchers constantly work to plan how their operations will stay ahead of the production challenges of the coming year, they often fail to create intermediate- and long-term business plans for how their operation must grow to sustain the addition of a new generation.” Remember than not every child or heir will view their stake in the business the same, and it may not always be prudent to the longevity of the business to divide the share of the farm equally among them.
  • Failure to prepare the next generation properly: “Farming and ranching are complex, technical enterprises that must work in a risk environment unlike almost any other industry. On any given day, a farmer or rancher must be an animal scientist, agronomist, environmental scientist, engineer, economist, commodity broker, human resources manager … the list goes on and on.”

It’s a grueling process. Keep an open mind. Be willing to talk through your questions and concerns.

“Being farmers, we’re rough and tough kind of people,” Johnson said, “and being open about our feelings and being open to discuss options, whether you like the option or not, is not always comfortable, but it’s important.”

 

The USDA offers guides for farm transitions. You can find them by clicking here.

 

Any views or opinions expressed in this article are those of the author and do not reflect those of AGDAILY. Comments on this article reflect the sole opinions of their writers.