My wife and I are 62 years old. We have farmed for 40 years, and now we want to start transitioning our 300-acre farm to our son and his wife, who are 32 years old. Our son owns the 100-cow dairy herd, plus young stock and machinery. How do we go about figuring out how to make the farm affordable to them and not saddle them with too much debt? We were waiting until milk prices went up, but that doesn’t look like it is happening anytime soon. We owe about $100,000 on our mortgage. Our son owes about $175,000 to the bank for his cows and machinery. We both live in recently remodeled houses on the farm. We plan to continue helping them on the farm for another six to 10 years, depending on our health. Please advise.
Hodorff: I don’t know your business arrangement with land and buildings. My first and bigger question to you is what is your income stream into the future? One idea that should be looked at is putting your land into a limited liability company. You could draw income from the LLC. You could then gift shares of the LLC to your son. To clear up your debt, sell the buildings to your son. Before you do any of these ideas, you should use a tax and business consultant to help guide you through any plans. There are many more ways to achieve your goals.
Miller: Transition planning takes time. Start by visiting with an experienced agricultural attorney, a certified public accountant or your tax adviser, and a Dairy Business consultant or Extension ag agent. You will need up-to-date financial information to have these conversations, including the cost basis on the assets that you own, a balance sheet of current market value, the income statement and cash-flow statement for your son and his wife, and your family-living expected needs.
The challenge you are facing is paying for your living expenses as you transition to retirement, the debt service on the remaining debt you own on the farm, plus the acquisition costs for your son and his wife. You will likely end up with a combination of a gifting or estate strategy through your will and some type of income stream in the form of wages, a noncompete agreement or contract sale of real estate in order to meet both objectives. This process will take time and involve a number of conversations among you, your wife, your son, his spouse and the advisers who are assisting in the transition. Good luck with your transition plan.
Wantoch: There may never be a perfect time to transition the farm. However, you should try to spend some time planning so the transition of assets and management of the farm business can happen smoothly. I encourage you to review where your farm is now and establish a baseline. Who are the people involved in the farm, and how are they compensated? Who owns the assets of the farm business, and are there any outstanding debts? Does the business generate a positive or negative cash flow? These are a few questions a consultant might ask you at your first farm succession meeting. It’s not easy to talk about next steps for the farm business unless you have spent some time discussing and reviewing your current situation. Then you can start to discuss where you want to be and how you can get there.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking at 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 firstname.lastname@example.org.