Farm transition is a lot like investing – start early!
The emotional and financial transitioning of farms to the next generation can be difficult. The best way to make it easier is to start the conversation early.
April 5, 2019 - Author: Ronald Goldy and Jonathan LaPorte, Michigan State University Extension
The average U.S. farmer is approaching 60 years old, therefore it is no wonder farm transition is a current hot topic. Over my 25 years with Michigan State University Extension, I have talked with several growers about transition. They know I am no expert, but I think they find it helpful just to talk, and part of my responsibility is to listen. In listening and observing, I have noticed some common threads.
There are two aspects to consider when dealing with transition. The one often considered first is the financial portion. I do not want to deemphasize this area and make it sound simple (remember, I am not an expert), but transition economics is often the easy part. It involves gathering financial numbers and determining the best way to move farm assets to the next generation while providing the senior generation with a living income. However, in my experience, it is the personal or family dynamic aspect of transition that is the most difficult. This should not be surprising given our human complexities and frailties. This is the aspect I will emphasize in this article.
Personal dynamics is an area best addressed via family conversations. That is why farm families need to start the conversation early and repeat it often. Some family businesses have found it helpful to bring in a paid counselor to guide (mediate) these conversations. This certainly is a possibility, especially in larger farms or prior to making final decisions.
Starting family conversations in this area can begin with either generation, but ideally it is the responsibility of the senior generation. I find it is the senior generation avoiding this conversation that leads to the biggest transition difficulty. They need to approach farm transition with the heart of a teacher – teaching the next generation the various aspects of the farm operation. When it comes to making farm decisions, some senior members treat junior members more like hired help rather than someone who will eventually take full responsibility. This approach leads to difficulty when junior members do take control – and let’s face it, one day they will. No one lives forever and the better prepared children are, the better their chance at keeping what the senior generation has poured their life’s’ work into. Therefore, as long as it is an inevitability, the senior members should be a part of it rather than leaving their children to go through a farm transition at the same time they are going through a funeral. Good planning and forethought probably will not remove all difficulties, but it will make things much easier if this were to happen.
The senior generation also needs to allow children to explore new ideas and enterprises early. Allowing them to try new ideas that you think won’t work may just prove you wrong. So, like a good teacher, step back and give them freedom to pursue. If it works, great! If it doesn’t, mistakes and eventual adjustments are best made while a safety net is still in place. This also lets them have a greater sense of ownership.
One early conversation needs to be the expectations of children going off the farm versus those continuing to farm. Hopefully the farm is set up so personal assets are separate from farm assets. It needs to be made clear early on to non-farming children that farming children will get the farm assets. With current farm prices, non-farming children cannot expect their farming siblings to buy out an equal portion. It is next to impossible to do this and continue to farm. Similarly, it would be difficult for farming children to pay full price to parents for all assets. This essentially turns farm assets into personal assets and personal assets are most often split evenly between siblings, even those off the farm.
A conversation also needs to include spouses that marry into the farm. Let’s face it, life can be messy, divorce happens. The farm needs to be protected from a divorcing spouse having access to farm assets. This is why a good business structure should separate each member’s personal assets from farm assets. A more likely situation is a spouse of a sibling not on the farm looking at all the assets and trying to convince their spouse that they deserve their portion. Again, an early family conversation with spouses included can go a long way in avoiding this expectation.
Take the time today to invest in your farm’s future by having a conversation with all family members. Guaranteed you will not find all the answers in just one conversation. However, open and honest conversations are like stock in a business. What starts out small grows in value over time until eventually the investment pays off for you and the business. These types of conversations are the best stock you will ever buy for your farm.
This article was originally published in the April 2019 issue of Vegetable Grower News.
