I follow the Legacy Project for the most part, but I haven’t seen anything that applies to my situation. My husband and I retired from farming about 10 years ago. In retirement, we cash-rented our farm to a neighbor. About three years ago, my husband died, and since then, I’ve maintained the same relationship. So today, I’m a non-farming landlord.
My kids don’t want to farm, but they don’t want to sell the farm either. They were all raised here, and they’d like to keep it in the family, if possible. They get along for the most part. Do I need a succession plan, or will an estate plan be enough? Should they sell the place when I pass?
You’re right; I have not addressed succession planning as it relates to a non-farming landlord. Thanks for asking. As we launch into this topic, let’s not forget that every situation is a unique combination of family, wants, needs and resources. As you well know, even though there isn’t a farmer in the next generation, members of your family might still have a deep emotional attachment to the farm and a desire to keep it in the family.
You’re not alone. A recent study by Iowa State University Extension found that more than 55% of the farmland in Iowa is owned by people over 65 years of age, many of whom are landlords to a tenant farmer.
As a landlord, you’re an important part of our farming economy. A USDA report indicates that 70% of farmland will change hands in the next 20 years. The report goes on to say, "If a farm family has not adequately planned for succession, [the farm] is likely to go out of business, be absorbed into ever-larger farming neighbors or be converted to non-farm use."
A plan for you. To answer your first question—yes, you need a succession plan. I suggest you start with a family meeting. Discussing your concerns and allowing your family to share theirs will answer most of your questions. In this meeting, look for common objectives. To you, the farm might represent financial security. For your children, it might be an emotional connection to childhood and growing up on the farm. For all of you, the farm might represent home, security and community.
Your family might appreciate the financial security of owning farmland. They might want to participate in farm activities or future business endeavors. Let your family talk and listen to them carefully. Questions you might want to ask:
- You’ve expressed interest in maintaining the family farm. Why?
- Like any other responsibility, owning a farm is a serious commitment. Are you willing to devote the time to maintain the farm, develop the tenant-landlord relationship and manage assets?
- How should decisions be made regarding financial matters, management, cash flow, investment and tenants?
- How will future conflicts be resolved?
- What might cause you to sell the farm, and how should that final decision be reached?
Sound decisions. Most family matters involve emotion. Don’t assume that because you don’t have a family member actively farming, there will be fewer emotions involved. Use basic business tools to help the family make good business decisions.
Using a formal business structure such as an LLC will allow multiple owners without separating parcels.
An operating agreement defines decision making, management structure, profit-loss distributions and more. A buy-sell agreement can detail the triggering events, terms and conditions for a buyout. And, most importantly, a communication plan will detail the how, when and who of family communication regarding the farm property.
Kevin Spafford serves as Farm Journal’s succession planning expert. His firm, Legacy by Design, guides farmers and agribusiness owners through the succession planning process. Send questions and comments to Legacy by Design, 2550 Lakewest Drive, Suite 10, Chico, CA 95928, (877) 523-7411 or firstname.lastname@example.org.
- Mid-November 2011