My brother and I both have full-time jobs in town. Five years ago, he started a custom-harvest business. He cuts and bales hay, chops hay, and chops corn silage on 1,000 acres. He says he has enough people who want him to do custom work for them that he could expand to 1,600 acres next year. My brother wants me to buy a third of his business and help him on weekends, vacations and after work, and continue working full time in town for now. He is 32 years old, and I am 28. We get along well. I have saved about $40,000, which is about half of what I need to go in on thirds with him. Do you think this is an idea that will work?

Tom Kestell: Congratulations on putting together a nest egg of $40,000. This is a great accomplishment for your age. Assets can be and should be leveraged to make progress in one’s goals. I have a few concerns, however.

First, $80,000 does not purchase a lot of equipment. Does your brother operate used equipment? Is he looking to buy new equipment or leased equipment? You say you get along well with your brother — that’s great. Try to ensure that your business plan will allow you to get along in the future. Stress of working together long hours can take a toll on relationships. He will always be your brother, so protect that relationship first, and the business end will prosper better in the long term. If you expect to work weekends, vacations and after work on your regular job, I would discuss and plan for some sort of life beyond work. If you have a significant other, make sure she is ready for the new lifestyle.

Most everyone must make sacrifices to succeed in business. But do not allow business to take over your very existence — it could be too steep a price to pay. With your desire to add new clients, make sure they have the ability to pay in a timely manner. If you think accounts due are not a problem in the custom business, talk to other custom operators for a reality check. Enter every new venture with a plan, realistic goals and your priorities in the right order. Every plan also needs an exit plan. You and your brother could leave the business in the future in an orderly and professional manner if you have a plan in advance.

Sam Miller: Your comments refer to what your brother wants to do — what do you want to do? If you would like to go into business with your brother, this could be a great opportunity. Before making your decision, I suggest sitting down with your brother to understand several things, such as the historical financial performance of the business, the forecast for increasing the business by 60%, the capital replacement and financing plan for the equipment, returns to labor, and management and decision-making. You may also want to understand if you are to always be a one-third partner or if that can grow to be equal partners someday. If you are satisfied with the answers and want to invest in and become a partner in the business, then meet with an attorney and put the agreement into writing. Include in the agreement how the business would be dissolved in the future as well.

Katie Wantoch: This sounds like a good opportunity to invest in a business. I would caution you to discuss things with your brother and have items in writing before committing fully. Farm Commons provides legal resources for farmers. The “Farmer’s Guide to Business Structures: LLCs, Corporations, Partnerships and More” handbook offers tips to consider. By coming together, you and your brother will be forming a general partnership. Every business entity carries legal implications, which help define tax treatment and answer questions about who has rights and privileges to make decisions, draw profits, and are liable for decisions and actions. You and your brother may want to formalize your partnership or choose another entity such as a limited liability company or corporation, which takes time, money and willingness to follow certain requirements. There are pros and cons, so consult with an accountant, attorney or other farmers.

Regardless, you should have an organizing document between you and your brother. This written document should detail decision-making, roles and responsibilities, return of profits, what happens if a partner wants to leave, worst-case scenarios like a death, etc. You are contributing a significant amount, so how will your investment be returned to you? Will you be paid wages by the business? Who has say on the sale or purchase of equipment?

Thinking through these items helps to alleviate future disagreements and provides expectations between partners.

Plan retirement carefully

I’m 63 years old, and I’ve decided this is the year I am going to sell my cows and machinery. In January, I hope to sell my farm. Originally, I planned to retire from milking cows at 66 and from farming at 70 years old, but I think machinery and cow values this fall will be fairly strong, and land prices have never been higher. What I’m concerned about is my health. I have had a couple of surgeries on my knee in the past 15 months, and I was diagnosed with Type II diabetes last year. My wife is 61 years old and works at a bank in town and has health insurance for both of us. She says the decision is up to me. Please advise.

Tom Kestell: I am pleased that you have decided to take on retirement on your terms. I think it is always important to be on the same page as your wife. The next people to talk with are a financial planner and a tax consultant. The liquidation of your assets is the most important decision you will make financially for the rest of your life. A well-thought-out plan can be the best investment you can ever make. Your goal should be to ensure that you can retain the maximum amount of your lifetime of earned assets. I would use every tool in the box to plan your retirement. Often, once decisions are made and put into practice, we cannot change the outcome.

I would also plan for your health after retirement. Your activity level might greatly change, so get advice on controlling your diabetes and your physical, mental and social well-being. Please enter this phase of your life with the same passion and determination that carried you through a successful farming career.

Sam Miller: Planning for retirement and your future can be a stressful time but usually provides for smooth transition. You did not indicate what your debt position is, so this will be a consideration as you plan for selling the assets. Start with a visit to your accountant, and lay out the expected sales plan to get an idea of tax obligations for selling your assets. Be certain to evaluate each class of assets separately by sales year to understand the tax implications (crops/feed, livestock, equipment, real estate).

You should also plan for what you will need to live on and where you will invest the proceeds from the sale. In this case, meet with a financial planner who can provide you with options. Lastly, consider the lifestyle change of transitioning from farming on a daily basis to something else. This may include a part-time job using the many skills you developed in your farming career, volunteering in the community or enjoying some well-earned leisure time. Seek out business and personal professionals who can help you transition to retirement.

Katie Wantoch: Getting out of the business of farming is a difficult decision, especially if you have been farming a long time. Hopefully retirement will be better for your health and future years with your wife. A sale of all your farm assets at the same time will generally result in the highest tax liability. You have a large bundle of assets that likely have a wide range of tax treatments when sold. First, you should establish current market price of assets — cows, machinery, feed/grain, etc. Then you’ll want to meet with your accountant or tax preparer to determine tax treatment of these items.

For example, dairy cattle that are 24 months or over will be subject to capital gains under Internal Revenue Code (IRC) 1231, which considers assets that are held for a holding period. Dairy cattle raised for under 24 months (calves, heifers) would be taxed as ordinary income. The sale of equipment may be subject to depreciation recapture, and then generally taxed as ordinary income under IRC 1245 or 1250. If instead you sell farm assets over several years, your accountant or tax preparer may be able to reduce your tax obligations by developing a plan, such as selling cows, raising young stock and selling as dairy replacements.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, statewide University of Wisconsin Extension farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].