Our youngest son is graduating from college, and I have encouraged him to get a job and work off the farm for a couple of years before he decides if he wants to farm or not. I think this will help him learn what it is like to work for someone other than his dad, earn some money and decide if he really wants to farm. We milk 260 cows and farm 600 acres in central Wisconsin. Our oldest son works full time on the farm with us. My wife and I are in our 50s. We haven’t done any estate planning. We have no debt. I’m wondering if we should talk to the attorney about forming a limited liability company and begin the process of bringing our oldest son into the LLC now, or if we should wait two years and see if our youngest son wants to farm and do it all at once? Please advise.

Doug Hodorff: You have been giving this some thought already about forming an LLC. I would encourage you to start the process now. You will need to work with an attorney and a financial adviser. You will need an operating agreement. Your larger issue will be what assets will be included in the LLC. One suggestion may be to keep your land separate from the operating LLC. As you work though this, you will need to develop a long-term strategy for your business. The strategy will include your long-term income stream and how your son or sons will be adequately compensated. Your business and family would be served well if you engage a consultant to walk you through this process.

Sam Miller: Congratulations on your excellent financial position — this provides options as you consider transitioning the business to the next generation. I suggest first, talk to your oldest son about his thoughts and goals. Does he want ownership in the farm business and possibly to add his brother in a couple of years? If the answer is yes, then meet with an attorney to discuss options about forming an entity to bring your older son into the business first, and eventually, the option of your younger son becoming part of the entity. I would not wait to see if your younger son wants to come into the business. Your attorney will likely provide the flexibility in the LLC agreement for both of your sons to gain ownership. Family business transitions take time. Beginning those conversations now will benefit all of you into the future. Good luck with the planning process.

Katie Wantoch: Planning for the future is important. However, estate planning for you and your wife is very different from determining the appropriate business entity for your farm operation. Estate planning helps you to preserve your assets while you are alive, and it assures that your wishes are carried out for those assets after you’re gone.  A business entity is a legal structure or form that outlines legal parameters of a business operation. My suggestion would be to meet with a consultant or trusted adviser first to start the estate planning process before considering a business entity. This person can assist you and your wife in making some important decisions about your assets.

Next step: Take care of the basics of estate planning, like a will or trust. Wills and trusts are legal documents that give instructions about the distribution of your estate upon your death and the people who will carry out that distribution. A qualified estate planning attorney can ensure that your estate plan is complete, accurate and legally enforceable. The expense and taxes saved can far exceed the cost of having a will prepared professionally. No matter how large or how modest your estate is, everyone has something in common: You can’t take it with you when you die. When that happens — and it is a “when” and not an “if” — most people would like to control how those things are distributed to the people or organizations that they care most about. After you have your estate plan complete, you can start the discussion about the next steps for your farm operation.

Is it time to sell land?

We expanded our farm from 60 cows to 220 cows in 2010 to bring our son into the operation. We built a freestall barn and put a milking parlor in our old stanchion barn. We also bought the neighbor’s farm to increase our tillable land from 200 acres to 360 acres. Our son and his wife live in the house on that farm, and we house most of our heifers on that farm. We still owe $500,000, and with the low milk prices we have had, we are struggling to keep farming. Fortunately, my wife and my daughter-in-law have full-time jobs off the farm. They provide health insurance, and their income pays for all of our family living expenses. We are wondering if we should sell 80 acres to help pay down our mortgage. A neighbor who crop farms offered to pay me $6,000 an acre for the 80 acres. We paid $5,000 an acre for it 2010. We wouldn’t be out of debt, but it would definitely make life a little easier around here. What are your thoughts?

Doug Hodorff: Selling off assets is one way of bringing in cash to pay down debt. In my view, if you sell off real estate, you may be selling off your only valuable asset. Your land is the only asset that has kept its value. I understand you are receiving off-farm income from your spouses. I may suggest you look harder at your operating costs. You should go through your cost of production and see where your costs are out of line. The big three to look at are feed costs per hundredweight, labor, and personal draws or living expenses. Your debt is not out of a comfortable range, so your payments should be manageable.

Sam Miller: Several years of low milk prices are taking a toll on everyone in the dairy industry. The current dairy environment requires taking a serious look at income, expenses and the capital structure of your business. Your plan can be a viable one, as selling some assets to shrink debt and lower your cost of production and improve margins is the goal. You will have capital gains tax to pay, but it will only be on the difference between the selling price and your purchase price. Be certain to set aside the money to pay the capital gains tax after visiting with your accountant. While the decision to sell land is difficult, it may allow you to restructure your balance sheet and improve profitability for the business. 

Katie Wantoch: I can appreciate you wanting to lower your liabilities after experiencing these low commodity prices. However, I would caution you from selling farmland that might be needed for your farm. What does your nutrient management plan indicate as the necessary acreage needed for manure application? Managing application of manure to apply proper amounts of phosphorus and nitrogen is a must to not only maximize soil fertility, but also be a good steward of the land. What is your crop rotation, and will it adequately absorb those nutrients? Nutrient management plans ensure applied nutrients meet crop needs.

If you have not updated your plan in recent years, reach out to your local agronomist, county land conservation department or Extension agriculture agent for assistance. The SnapPlus software is available to assist you in preparing your nutrient management plan that meets Wisconsin’s Nutrient Management Standard Code 590 and NR 243. Be sure to have updated soil samples taken to ensure that you have the most current soil fertility information. Please review all your options with a consultant or trusted adviser before selling farmland that may be essential for your farm operation and cause undue financial stress in the future. 

Agrivision panel: Doug Hodorff, Fond du Lac County, Wis., dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. 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].