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Farm transfer not easy in tough times

TOUGH CALL: Panelists suggest remembering that “fair” and “equal” aren’t always the same when dealing with farm transfer issues.
Profit Planners: What do you do when one son can’t afford to continue buying shares?

Our two sons started buying shares in our operation as my wife and I began to slow down about five years ago. I’m now 68. One son couldn’t buy any more shares in 2017 due to tight times. It’s looking like he might not be able to do so again in 2018. Do we continue carrying him? The other son continues buying shares. How do we keep this fair?

The Profit Planners panel includes David Erickson, farmer, Altona, Ill.; Mark Evans, Purdue University Extension educator, Greencastle, Ind.; Steve Myers, farm manager, Busey Ag Resources, LeRoy, Ill.; and Chris Parker, cattle, forage and timber producer, Morgantown, Ind.

Erickson: If you have given each son the same assistance and opportunity, then I think you are “keeping it fair.” I’m not sure what you could do to help one son without helping or hurting the other. Discuss your concerns with the son who appears to be struggling and see if that might provide some insights to his situation. Remember to keep the other son informed so no hard feelings are created from assumptions that might be made absent of facts.

Evans: Just like in any business, it would seem shares could be owned in different ratios, and consequently, profit or loss could be allocated to reflect ownership ratios. While that may seem oversimplistic, the financial piece may be the easiest component.

The challenge will be when it comes time to make a decision about something in the operation, especially should there be disagreement. In this situation with shares, likely Mom and Dad started out with more voting power, as they owned the operation while the sons started buying shares. Speaking of Mom and Dad, what will be the role of spouses? How active do they need to be to have their own shares, or are they automatically considered as one with their husband, regardless of roles? These are decisions that must be made upfront. In the end, the decision-making process should be made similarly to the amount of capital, both financial and workwise, which would be broken down by agreed-upon terms.

Myers: While I’m unsure what is implied by the phrase “carry him,” I believe the answer is that “fair in not always equal and equal is not always fair.” Each son has decisions to make for himself in terms of priorities and allocation of capital. You must do the same.

Communicate with both sons, and then make decisions based on that feedback. You have numerous options, from resetting terms to make them more manageable, to outright gifting, to pulling the plug or permitting unequal shares of ownership. Gathering information is the first step to either getting back on track or implementing a complete reboot.

Parker: This is undoubtedly one of the more difficult situations to face as a parent, let alone owner of a successful farming enterprise, resulting in a difficult balancing act. If there is no written agreement covering various contingencies, one should be drawn up ASAP with help from your lawyer. Treat this as a business deal with consequences for not meeting payment objectives. The parent in you has emotional ties that may cloud the business decision, and my personal experience says that if you let emotion rule, the situation will only be that much more difficult and entangled for you, your spouse and your children. In the real world of business, there are consequences for nonfulfillment of contracts. Harsh words, no doubt, and easier for me to say than you, but true.

TAGS: Management
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