Organic Broadcaster

Farm Transfer: Plan so all heirs get equal share
By Teresa Opheim

 

Darrell Mohr put a lot of miles on a Farmall F-14 tractor while growing up on a 120-acre Southwest Iowa farm. Today his daughter, Amber, and her family run Fork Tail Farm, selling pasture-raised meat, vegetables and flowers on a portion of that farm that Darrell inherited and remembers so fondly.

DarrelI and his wife, Chris, also have two non-farming children. In a farm legacy letter that Darrell wrote, he specifies that he wants “my immediate heirs to receive to the best of my ability equal economic value.” Chris agrees. Both also say “harmony in the family is important as well as all recognizing the value of this farm.”

Darrell and Chris are typical in their desire to divide their assets equally among their children. Most lawyers have experience drafting legal structures that will accomplish that goal. In the Mohrs’ case, for example, their attorney helped them set up the farm in the Ernest W. Mohr Trust, with Amber and her siblings as equal trustees. Amber and her husband, Jeremy, rent from the trust.

“If in the future they would want to expand their business and add more land to it, I would hope our other children would be supportive,” Chris said. “Amber has told me that she might be living there but she sees it as the ‘Mohr Farm’ and her siblings can be a part of it at any time.”

If you have farming and non-farming heirs and want to treat all of your heirs financially equally, here are some questions and tips to consider:

 

Have you adequately compensated your farming heir?

For example, Amber and Jeremy are making many improvements to the farm, such as restoring farm buildings, renovating pastures and regenerating soils. Have they been reimbursed by the trust for those costs? Would it be fair to reduce the rental rate as they spend their days making farm improvements?

 

Has the farming heir been adequately compensated for labor?

Jolene, a Minnesota organic farmer, has been working on the family farm for 30 years, but has never received a salary. Only occasionally has she received the proceeds from the sale of a steer, and her parents have given her no ownership interest so far in the equipment or land. She is just expected to help out. (No wonder she has started her own farm nearby, while still helping Mom and Dad on their farm.)

 

Are you leaving your farming heir the flexibility needed  to run the business?

According to John Gilbert, who runs a diversified crop-livestock farm in Central Iowa with his family, his “folks didn’t want to think their ‘life’s work’ was going for naught.” They wanted the farm and dairy to continue, as well as the family, John said. One of the steps they took was to split the farming operation into two corporations in the 1990s.

“Primarily my father was trying to figure out how to give my brothers an interest in the farm without being part of the major corporation. Then Bev and I would end up with farming without so many entanglements,” John said. With this approach, his father ensured that there was never “an issue of my brothers interfering…. It was essentially Dad and me making decisions on the day-to-day operations.”

 

Do you have a buy-sell agreement for your farming heir?

The Farm Journal Legacy Project considers this probably “the most important tool for maintaining the integrity of the business entity in succession planning.” The buy-sell agreement gives your farming heir the right (but not the obligation) to buy farm property if the non-farming heirs decide they want out. It is binding on your non-farm heirs and gives your farming heir a definite and reasonable purchase price and terms for buying farm assets.

Plan early. The earlier you plan, the more likely you are to be successful providing both your farming and non-farming heirs with an equal inheritance. Jolene’s mother has a $250,000 life insurance policy; her financial advisor has recommended she designate her non-farming son as beneficiary on that, while leaving farm assets to Jolene. The Gilberts have used gifting to transfer shares in their farm corporation over several generations.

Communicate often, and hire good help. If you don’t communicate, you cannot clear up misperceptions and expectations, and you may leave a legacy of family strife—no one wants that.

“Every farm and family is different. Parents all have different objectives, which affects how they want assets shared,” John said. “The critical point is for the parents to explain their wishes to all their descendants, and have the important parts in writing with a lawyer. The money spent with professional guidance is the best investment a family can make. If parents don’t want to spend the money, then the heirs need to assume the costs to make sure things are done right.”

 

Teresa Opheim is Senior Fellow working on farm transfer topics with Renewing the Countryside and Practical Farmers.

 

Join the farm transitions discussion list: www.renewingthecountryside.org/farm_transitions

 

From the July | August 2017 Issue

 

 

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