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Plan farm transition between generations

Few transitions on the farm are as trying or as difficult to accomplish as transferring ownership from one generation to the next. Several hurdles stand between the parties involved. The difficulties involved rarely deter farmers from attempting to pass their legacy on to their children.

Most businesses go through this cycle at some time, but there are unique aspects as this transfer relates to a farming operation. Success can occur, but there are issues that must be addressed for a smooth transition to occur. As is the case with other obstacles, careful planning and clear communication are key aspects to success.

Three issues important to the smooth generational transition include ability, expectations, and experience. While few people can excel in all three of these areas, working within this framework can help the successful transfer. Communication on these issues among the parties involved cannot be overemphasized.

Ability is often seen as lacking when viewed through the eyes of the older more-experienced farmer. The younger generation may lack ability in several areas as related to production agriculture. Sure, he has a college degree from a good ag school, but what can he add to the farm?

A good way to address this division is to list strengths and shortcomings. Honestly evaluate these qualities and assist in developing the weaker areas. This may seem simplistic, but the areas that can be identified as weakness early can be worked on together. Examples of these are leadership and responsibility.

If it is earned, responsibility will be more valuable than if given as a gift. The ability of the younger generation should be tested in goals of ever-increasing levels of difficulty. Set these goals high but attainable. As these goals are accomplished, other more difficult tasks can be assigned.

Be careful not to dwell as much on the process as the outcome. A new or different approach can sometimes work better than “we've always done it this way.”

Take time to praise a job well-done as this is most likely the reward being sought.

A mentoring relationship is preferable to an employee-employer relationship. An employee/employer relationship sometimes leads to dissatisfaction for the older as well as the younger person. The reason for this difficulty often relates to decision-making and communication. It may not matter to an employee why a particular decision is made but to a partner it often does matter. To the younger person the decision-making process may be more important than the decision itself.

Expectations can be another source of problems in the transition. Unrealistic expectations on the part of the younger farmer may create problems later. The idea that the older farmer started out in debt and working long hours for low pay is not what the new farmer sees as an appealing lifestyle.

The problem is the younger farmer may want to carry the responsibilities of an employee while living the life of the boss. This may be one of the most difficult hurdles to the generational transfer. This impatience is a characteristic of youth, and though it may be frustrating to deal with from the older farmer's point of view, it is often an image of his own youth.

Unrealistic expectations are not limited to the younger farmer. The older farmer may have unrealistic performance expectations for the younger farmer as well. These judgments are often preceded by the phrase, “When I was your age….” It is easy to forget that many things have changed since those times.

Here again, before troubles begin, expectations from both generations should be addressed in a realistic and honest manner.

Experience is perhaps the most difficult issue to address. The older generation has the edge in this category. The difficulty here is allowing the younger farmer to gain some of his own. Experience is the best teacher and a difficult and costly education.

Standing aside while letting someone make a mistake can be frustrating. Patience is required on the part of the teacher and the student alike. It is unlikely that the younger farmer wants to work completely without a net. It is equally unlikely that the older farmer would risk his retirement on an unsupervised apprentice.

Assuming the younger farmer has nothing valuable to offer without any “real world” experience can be a source of problems. On-the-job experience is valuable in running the farm, but that is not the only kind of experience that matters. Increasingly, computer experience — especially as it relates to business management — has become a valuable skill.

The goal is to merge your on-the-job experience with his education to maximize the potential of the business. Losing sight of this goal in the urgent day-to-day running of the business can be easy. Remembering that this is the main goal may allow for more understanding on the smaller details.

There are many experts who can assist with this transition. For more detailed questions, contact attorneys and accountants with expertise in estate planning. Another source of information can be found on the Web site for the National Ag Risk Education Library. In addition, a wealth of information on this topic can be found on the Internet through most of the popular search engines using the phrase: “Passing on the Family Farm.”

James Marshall, Rob Hogan, Scott Stiles and Kelly Bryant are University of Arkansas Extension economists. Comments or questions? Call 870-460-1091 or e-mail [email protected].

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