Our oldest son has been farming with us for five years. Our youngest son, who is 25, is joining us on the farm July 1. Our oldest son has invested $200,000 in the farm. Our youngest son will be buying $100,000 worth of cows from me and essentially paying off our debt on personal property. We still have a $250,000 mortgage on the land and buildings. We own 400 acres and milk 300 cows, and we were planning to expand to 450 cows this fall, but in light of what happened with Grassland Dairy, we have decided not to expand our dairy operation. I have dusted off my college diploma and am taking a full-time job off the farm. My question to you is about estate planning. I am 50 years old. I thought I would be 65 when I retired from farming, but it looks like it’s happening a little sooner than I planned. I will still have ownership in the farm, but I want my sons to manage the farm. How can we reflect that in their compensation? We also want to make sure our older son has more ownership because of his years of experience and investment in the farm. We don’t have any other children. Please advise.
Hodorff: My first response is, your sons will be managing the farm for you, so you have two issues here. First, as you mentioned, is how to compensate your manager. Who is your manager? I would set a base wage. Keep it very average for your size of farm. Then put bonuses in to reflect profit. You could reflect compensation for this in dollars or shares of stock in the business. My next question for you is, at your size, can your business survive with both sons on the farm? Your ownership question is confusing to me. If the sons brought investment to the business, did they receive shares of ownership for their contribution? If you want to reward your oldest son, gift some shares. The big question for this operation is: Does the majority owner take any return on investment?
Miller: Getting an early start on estate planning is always a great idea. Your process should begin with outlining both family and business goals. You also need an attorney experienced in estate planning, in particular farm transfers, as well as an accountant to advise you on the tax implications of selling assets and estate planning. As for compensation, you may want to consider part of their wages paid in cash and part in additional ownership, to either be gifted or sold to them at a reduced level. Again, consult with your attorney and accountant on this process. A qualified dairy business consultant or Extension ag agent can assist in the goal-setting process to start your business transition plans. Good luck.
Wantoch: Estate planning involves different things for different people. It’s great that you have started thinking about this process and are ready to transition the farm to your children. Transferring the management or day-to-day responsibilities should be thought of separately and may be done at a different time than transferring ownership of assets. What are your sons’ and your roles on the farm now, and how will this change when you step away? It may also be helpful to talk with your sons about their specific plans for the future, both personal and for the farm business. Are all of you on the same page about things, such as who is going to make decisions — is it one, two or all of you? Discussing this aspect and others regarding the future of the farm can be enlightening as you learn what each person envisions, but it may also provide some glaring differences between family members. These conversations are best to have before any major change in your farm business is done and before you get too deep into estate planning.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension ag 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].