Imagine you were suddenly forced to buy all your operation’s land, livestock and machinery at today’s market prices. Could you afford to start from scratch? If not, then think long and hard before asking your kids to do so on someone else’s terms.
Since I’ve been working with families to help transition their farms from one generation to the next, I’ve observed one issue to be the most gut-wrenching and divisive. That is, each family must decide whether the child taking over the farm should be required to buy out brothers and sisters who don’t farm.
This question has triggered more family disputes than practically all other succession planning issues combined. Just search the internet for articles about how to “fairly” and “equally” split the farm, and see how many opinions you find. I’ve said it before: If you want to simplify this process once you’ve had your first child — STOP! Going any further than that is asking for future conflict.
Farm finance complicates succession
Most farms capture slim profit margins, which means they generate cash very poorly, but they do a decent job at accumulating wealth. Farming often requires off-farm employment just to make ends meet. However, as land prices increase, farmland becomes more valuable. Wealth tied up in land, however, is not accessible to anyone unless you sell the farm.
These farm finance dynamics create problems when splitting up a farm among your kids. If full market price — or the rumored price — for a farm can be demanded the day after a parent’s funeral, then the family farm has a fairly dismal chance to remain intact. That’s because if the farm itself doesn’t generate enough cash for the child operating the farm to buy out siblings’ portions, then the child taking over the farm may struggle to compensate those who want to cash in their shares.
Deciding who gets the farm
I’m not going to tell you if “equal is fair” or what the decision should look like for your family. You know your family and situation better than I do; I’ve come to realize there is no one-size-fits-all solution. Every situation and backstory are different. You must make decisions that work for your situation.
I will tell you, however, that what you decide and especially how you implement your decision will impact the next generation’s ability to continue the business.
Years ago, I heard Dick Wittman of Wittman Consulting say some of your kids may be on your business’ ownership train, and some may be on the management or labor train. Not all kids will be on both. In that case, it’s our responsibility as parents to build the tracks that link together kids on the two separate trains. Next month, I’ll discuss some creative solutions that may help.
It’s time to make a plan for your family’s future. Sticking our heads in the sand and leaving the kids to work it out on their own after we are gone significantly increases the odds that an estate sale and land dispersal may be in your farm’s future.
Tucker is a University of Missouri Extension ag business specialist and succession planner. He can be reached at firstname.lastname@example.org or 417-326-4916.