Acres & Assets | Transitioning the Farm: Things to Consider

Typically, farmers and non-operating landowners hold onto their farmland throughout their lifetime only transferring ownership upon their death.  There are sound financial and tax reasons for keeping the land and not changing who owns it until title transfers to the next generation.  However, there are a number of common sense ways to make for a smoother transition of the farm from one generation to the next.  These are especially relevant for the non-operating owner as there are additional considerations that farmers need to be planning for when transitioning land and the farming operation that we will not go into in this article.

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

Have Trusted Advisors   The landowner who is making succession plans for their farm should have people who can advise them on ownership structure of the farm, tax implications, legal requirements and documentation, and a trusted tenant or possibly a professional farm manager to help with operations of the farm.   If the landowner lives out of state, it would be good to have an attorney local to the farm to handle future legal items specific to the state where the land is located.

Having a list of personal and local farm advisors available for the next generation of owner when they inherit the farm is a great start to helping them understand and appreciate farm ownership.  With professional and experienced help who know the family and farm already in place for both generations, the next generation will have an advantage as they transition into ownership of the farm.

Communicate   Good communication is the key to success in personal and business arrangements.  First, the landowner should have a succession plan for their farm in place and documented including how the land is titled, ownership structure, copies of leases, written documentation of any auxiliary agreements, list of all pertinent contacts involved with the farm, banking details for the farm if a separate account, real estate tax statements, documentation and maps of improvements such as tiling, Farm Service Agency details, and copies of any government contracts. 

With a plan and documentation in place, the next step is to visit with the next generation of owners so that they know pertinent details about the farm, who to work with, and where documents and records are located.  Talking with family members about financial matters can be difficult, but when the farm asset is possibly worth several million dollars, the owner and next generation are well served to have open discussions about what the current owner would like to see happen with the farm and why.

A good transition step with a farm is to start including the heirs in communications and reports about the farm.  This might be reports from the tenant about yields and practices or copying field reports from a professional farm manager if one is employed to oversee the farm. 

Visit the Farm   There is no better way of helping someone understand what it means to own a farm than to visit the property with them.  Getting feet on the farm is a perfect opportunity to see the lay of the land, see how topography influences how the land is used, better understand why conservation improvements or repairs need to be paid for, and to realize how the farm sits in the local area.  The visit will also be a time to get to know the history or legacy of the farm whether it has been passed down from generation to generation or whether it has been recently purchased and why this specific farm.  The farm visit should always include discussions with the tenant as they are the person who sees almost every inch of the farm and knows the why and how of farming it.   Preferably visits should be done on an on-going basis so as ag technology, farming practices,  and markets change the owner can make decisions that best suit the current and long-term needs of the farm.

These are three basic practices for non-operating landowners to consider when planning for the succession of their farm.  Each owner will have their own circumstances to navigate through when setting up their plans and implementing them.  The better the process, the better the outcome for all.