Acres & Assets | Transitioning the Farm: What Not to Do

Twenty years of working with non-operating landowners and farm families provided me with a first-hand seat watching how landowners, farmers and non-farmers alike, handled the transition of their farms.  Or in some cases, it was a lesson in how not to handle the succession of the farm asset. These examples raise the question of how to do a better job of smoothly transitioning the farm to the next generation which we will explore in the next article.

Note:  Nothing contained in this article or the next should be taken as tax or legal advise.  Please seek the counsel of a tax accountant and estate attorney when making decisions concerning the ownership and succession of your farm.

We will start off with some common occurrences in the families of non-operating landowners which do have some similar characteristics with farmers when transitioning the land.  Farmer families have some very specific circumstances to their situations that we will review later. 

“We found this in the file”

It is not uncommon for children of landowners to know basically nothing about the farm until they are cleaning out the house and files of their recently deceased parents.  “We found this in the file” referred in most cases to when a child found a farm lease, copy of a deed, or instructions to contact an attorney or farm manager to assist with the farm. This often was the first introduction to the farm and what to do with it.  This is not a good way to handle the transitioning of a valuable asset that probably has a history attached to it.

“I never knew this about mom and dad’s farm”   

The heirs who will inherit the farm may have visited the farm with their parents and met the tenant, but there are often important details that have not been shared with the next generation of owner.  This could be a special deal with the tenant on lease terms or an agreement with an adjoining landowner that is not recorded.   One especially important item to know is whether past owners of the land have made any first right of refusal deals with the tenant or others pertaining to who gets the first opportunity to purchase the land when it is sold.   Any of these situations can create headaches for the next generation if they are not aware of the details.

“I don’t even know where the farm is” 

A common mistake of older landowners and their children too is to never initiating one or more visits to the farm.  Many times when someone inherits a farm they don’t even know where it is located let alone ever set foot on the property.  The older and younger generation can both bear responsibility for this lack of essential knowledge about the farm.

“I don’t know who to go to for advice” 

If you suddenly learn that you inherited a farm and you knew nothing about land or farming, where could you go for advise?  This is a situation that happens with some next generation landowners who have no attachment to agriculture or the land.  Finding a trusted adviser is something that should not be left to the neophyte landowner.

“I make how much from the farm?” 

An unfortunate example of how not to transition a farm that can happen in non-operating families is that one or more siblings or inheritors have no idea of the economics of owning the farm and the profits they should be getting from it.  Sorry to say, this often ends up that one or more owners are not getting an appropriate income from the farm for various reasons.  Fair treatment between family members and also with the tenant are important when establishing the income and long-term value of the farm.

For farm families there are some more unique situations that would be classified as ones not to do.

“Son, it’s time for you to take over the farm” 

Unfortunately, it is not a cliché that it can happen where an 80 year old farmer finally decides to turn over the farming operation and decision-making to their son or daughter who happens to be 50 and who has not been involved in day to day or important decisions for the operation.  In today’s progressive farming operations, this is not usually a problem.

“I want my equal share” 

When farming parents pass away and the farm operation and land pass to the next generation, there can be issues with how the child who remains in farming is treated as to inheritance and how the non-farming child is treated.  This is an age old conundrum of fair versus equal that should be well-thought out and discussed far in advance of the time of transition.

These are just a sample of the things I heard and observed in my years of working with landowners.  Today, more attention is being given to farmland and its value as an asset which is helping owners and inheritors of the land give more thought to succession planning for the asset.  In the next article, we will review some of the best practices a landowner can employ when transitioning the ownership of their land.