Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.
Formulating your farm’s succession plan is likely not a straight line.
“It’s a puzzle. All the pieces have to fit together for the picture to look right,” says Polly Dobbs, an Indiana attorney who focuses on estate, wealth transfer and business succession planning. “I don’t have the magic wand. But I know farm owners have to stay focused on their end goal.”
From her professional experience, as well as being part of a seven-generation farm family, Dobbs shares the following observations and insights.
1. The upcoming generation needs to articulate what they want from the current ownership. “The next generation can’t be afraid to start the conversation,” she says. “It could be as simple as saying, ‘I want skin in the game’ or ‘how can we talk about how I could buy you out?’”
2. It’s valuable to share knowledge and experience. “Instead of having the mentality of ‘why is dad still here,’ ask ‘could I shadow you in marketing decisions,” she says.
3. Sweat equity is still often part of the equation for farm ownership transition. With her clients, Dobbs says about 60% of clients who have a family member successor say the next generation has earned the ability to come into ownership on discounted “family friendly” terms due to sweat equity. However, others feel the successive generation’s contributions were not up to expectations, so full price is charged to buy into ownership.
“There’s no legal answer here,” she says. “It’s about family goals. But it is important to be specific of what is required for someone to be able to take on ownership.”
“I ask every retiring age farmer, what is happening with the equipment. Charging a discounted price to buy machinery to someone who has worked hard alongside is like a deferred compensation plan,” she says.
4. “Those who have on-farm family successors are lucky,” she says.
Dobbs says the biggest trend she sees is farm owners looking outside the family tree for the next owners.
“If you’ve got a successor operator, they need continued access to the land base,” she says. “Sometimes the only focus is on how they are buying the machinery or buying the grain bins, but you can’t overlook their access to the land.”
5. Get everything in writing. “Young farmers should be nice to their landlords and plow their driveways, etc. Then ask to secure an option to continue to farm their ground and have a first right to buy it. Handshakes don’t count; it has to be in writing to matter,” Dobbs says.
Dobbs encourages farmers to consult with your local attorney and professional team who know the laws of your state.
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