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Serving: WI
Agrivision: Help yourself first before you help your nephew farm

Agrivision: Help yourself first before you help your nephew farm

Our Agrivision panel answers a question about precautions to take when helping the next generation get started farming

THINKING AHEAD: The equity you have in the farm is your income stream going forward.

Question: For the past 18 months, I have been helping my 28 year old nephew farm on my farm. I rented 250 acres of cropland and my 55 tiestall barn to him along with the rest of the outbuildings, silos and the second house on our farm. I am letting him use my farm equipment for free and I am not charging him for my labor. He and his wife are milking 60 Holstein cows that they purchased from me. They also own the youngstock. He’s doing a good job growing crops and is averaging about 70 pounds of milk per cow per day, but as you know milk prices aren’t what they were when we hatched this plan a year and a half ago. I figured it would take him three years to get on his feet, now I’m thinking it will take him five years before he can consider buying my equipment. I don’t think he will ever be able to afford to buy the land. My wife and I don’t have any children and we are still living in our house on the farm. I’m wondering if there is a way we can help them more? Should we look into forming an LLC and give some of the equity in the farm to my nephew? What about the cows and machinery? We are 68 years old and we don’t have any debt. I’m pleased that he likes farming, is doing a good job and is willing to continue farming the farm my parents (his grandparents) bought 70 years ago. Please advise.

Hodorff: I congratulate you on helping young people in their life`s endeavors. My suggestion would be very cautious on giving too much! You have been very supportive and will continue to support your nephew. Your nephew has a business to manage and it should be his responsibility to navigate the lean times also. Use this as a learning experience for him to see good times as well as lean times. For you and your wife you have many years to draw from your life efforts of farming. I can see you are there to support your nephew but I feel the most important thing to keep in mind is your own wellbeing.The equity you have in the farm is your income stream going forward. Giving is good but think about yourselves and you can do some of your giving with your estate plan. Do you have an estate plan?

Miller:  This is a great time for the four of you to sit down and update the business plan.  Contact your local Extension ag agent or farm technical college instructor to assist you in completing the plan. This would include a discussion of how to eventually transition the machinery and farm real estate. This plan could include selling the farm on a land contract, establishing a fair rental rate or purchase option for the equipment and then the ability for your nephew to defer payments during more challenging economic times. You can collect them later during better times or establish a gifting plan for your nephew and his wife to build equity in the business. After completing the plan, visit with your accountant and attorney to address the tax and legal issues to protect you and your wife and your nephew and his wife. Transitions take time and effort and you have shown the patience for both. Good luck working through the rest of the process.

Wantoch: It’s great to hear that you and your wife are willing to help the next generation to be successful! Many beginning farmers don’t have the opportunity like the one you are providing to your nephew. Be sure that you are considering you and your wife’s needs for the future so that you can continue to offer these breaks to him. You should review what your cost of living and other needs will be in your retirement. Then you can seek advice from tax preparers, accountants, financial advisors or a consultant regarding the potential sale of your farm assets and rental income to meet these needs. Once you have an idea of the income needed for your retirement, then you will be able to discuss with your nephew about his future plans for the purchase of your cows, machinery and farmland. You might be able to continue to provide him with opportunities if your needs are being met.

Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head agricultural banking BMO Harris Bank; and Katie Wantoch,  Dunn County Extension agricultural agent specializing in economic development. If you have questions that you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919 or e-mail them to foleary@farmprogress.com

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