Fair, Not Equal

February 6, 2009 09:26 AM
 




Like so many farmers his age, Danny Logan faced a challenge when his son, Stephen, wanted to take over the family farm at Gilliam, La.

Getting Stephen involved in a meaningful, economic way without alienating Danny's two daughters raised some issues. "This question of how to distribute the farm turned out to be very difficult," Danny says.

"My son is the youngest child. To have him in the business without the girls feeling I gave him the full benefit of my life's work was hard. I've worked really hard to be fair," he says.

Stephen already owned a 50% share of the farm's machinery; now he's buying Danny's half. Stephen rents Danny's land. He also farms land he bought on his own.

A limited liability corporation owns Danny's land. In addition to the three siblings, who own equal shares, it includes investors who partnered with Danny on the original purchase. "They are pleased to have Stephen in the business," Danny notes.

"We're trying to keep the farm as a going concern unless there are unusual circumstances. If one of the children wants to sell their share, they have to offer it to the other heirs first, based on a land evaluation. If they can't agree, they have to go before an arbitration board, and they've got to accept that decision," Danny says.

"The land may turn out to be so expensive that Stephen couldn't afford it. If so, it would go to someone else. I don't know what to do to have it more fair than that," he adds.

Personal growth. Stephen, now 40 years old, came back to the farm right after getting his college degree in business administration. As a student, in addition to working on the farm during his summer breaks, he interned with the National Cotton Council and the economics group of Dunavant Enterprises, the multinational cotton merchant.

"Dad did a great job of letting me have responsibility," Stephen says. "I've seen other young guys without it get bored and frustrated. It's a reason a lot of kids end up leaving the farm.

"I've been able to grow on the job and do my own projects, like put in irrigation," he explains. "Those things keep me motivated. We are always trying to improve and get better. We're never in the groove of doing the same thing over and over."

Danny, 71, like Stephen, is a graduate of prestigious Rhodes College in Memphis, from which he holds an economics degree. He particularly values education and emphasizes that it should not stop when the student is handed a diploma.

"He encourages me to attend meetings like TEPAP [The Executive Program for Agricultural Producers] all over the country," Stephen says. "That's great because I make a lot of friends doing that—people I can call and talk things over with later. It lets me see that pretty much everybody is having the same problems around the country."

Business focus. It's all part of having a management orientation. The Logans focus on the business aspects of the operation and let their employees operate the machinery. The best use of their time is in management, they feel.

"You can get too involved with a tractor, and that's not where you make your money. We've got an operation to run here and we're the managers. That's my philosophy," Danny says.

"Things are a lot different now from when I came back to farm in 1959," Danny says. "I'd just finished college, and the next thing I knew I was out in a field with workers hoeing cotton. I thought, ‘Surely I'm worth more than this.' We had to get out from that way of thinking. Slowly but surely, we've done it."

Transfer tactics. The Logans have never met Ron Hanson, a University of Nebraska ag economist whose work involves helping his state's farmers do a better job of transferring farm ownership. But their plan appears to be on track with his philosophy on family farm succession.

"The question is, how do you take the family farm business and pass it on within the family and still have peace in the family?" Hanson says.

"Some parents have the attitude that ‘you can buy the family farm but I still own it.' Passing on ownership is one thing; control is another. In the succession process, a lot of emotion and stress is involved," he says. "Those issues have to be discussed and resolved to everyone's agreement, even if the process is painful. I can't think of anything that puts family values more to the test than money or property."

Squarely facing up to the long list of potential sibling conflicts, as the Logans did, is crucial to ownership transfer planning. "Are the parents willing to treat all children fairly and equitably in estate planning? Not equally. Equal almost never is fair in the family," Hanson says.

"This issue with non-farming children is so darned tough to deal with because parents do have favorites: Some are chosen, some can never do anything right," Hanson says. " You've got to block those feelings out and come up with an estate plan that's fair and equitable—and work it all out ahead of time. Too many times, decisions are made under stress."

In the end, parents should make decisions they know are correct. "It's their farm. They have the right to do what they want. Some kids worked harder on the farm; some care more than others," Hanson says.

"Mom and dad have to stand together. They must work through this until they both agree on a plan or strategy to carry out their wishes on this estate," Hanson says.

Next steps. Back in Northwest Louisiana, at the Logans' place, Danny deflects questions about the farm's operations to Stephen. "He runs the deal now. I'm retired," Danny says.

These days, Danny spends a good bit of his time as a volunteer for an organization that installs clean water systems in developing nations. He's been concentrating on helping the people of Haiti.

"When I retired from farming, I asked what I could do that would be beneficial to other people and use my energy and skills," he says.

"Installing the water systems has been a real inspiration for me. These people in Haiti have no jobs, no infrastructure, no roads, no electricity, and no water," he says. "It's the worst situation I ever saw in my life. These people need help, and I'm able to help them."

He also rests easy knowing that back home, Stephen runs the farm and runs it well.



Fair versus equal
In deciding how to manage a business transition, parents need to recognize the difference between their desire to treat each child equally in any bequest and the need to fairly recognize sweat equity, says Rodney Jones, Kansas State University ag economist. "A fair arrangement may not always be equal," he explains. Insurance and long-term lease or purchase agreements are just a few ways to balance these issues.



To contact Charles Johnson, e-mail CJohnson@farmjournal.com.

Top Producer, February 2009

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