Home / Successful Farming / Farm Family / Time-tested transition

Time-tested transition

Agriculture.com Staff 10/19/2009 @ 1:20pm

When Ryan Keller, 32, decided to join his family's dairy operation near Richland Center, Wisconsin, he and his parents, Gordon and Marsha Keller, spent little time wondering what transitional process would best work him into the business. Ryan would gain ownership in Kelland Registered Holsteins, Inc., by following the same path his parents had set out upon 25 years earlier.

The transitional process that served Gordon and Marsha well evolved over time. In 1975, they formed a partnership with Gordon's parents, Theron and Jena Keller.

"Later, we converted to a corporation for tax purposes," says Marsha. "The cattle and equipment were owned by the corporation and the land remained in the partnership."

Over the years, there were annual purchases of shares and some gifting of shares to the younger Kellers by the elder Kellers. In 1999, Gordon and Marsha purchased all of the remaining shares of the corporation, and Theron and Jena financed that purchase.

They purchased the parents' interest in the land partnership in 1988 on an installment sale.

In 2011, Ryan and his wife, Michelle, will begin purchasing land from his parents on a contract. Starting in 2003, Ryan began receiving part of his compensation from the corporation as a stock bonus. Ryan currently owns about 15% of the stock in the corporation.

"This proved to be a very good transitional process for us," says Marsha.

"Everything is written out in black and white. There is no finagling with lenders, and interest rates are set. Every year we do an inventory. We then have a corporate meeting, and we review the price of the shares. We have a buy-sell agreement that establishes the value of the shares in the event of the death of a shareholder or if a shareholder wants out of the corporation."

The transitional process transfers assets gradually to the next generation of operators, without financing from lending institutions. The selling members of the family are the bank.

"The benefit of using these business entities is that they provide a way to take farm assets and divide them into pieces so that they can be transferred more easily to the younger generation," says Stuart Urban, the lawyer who designed the Kellers' time-tested transitional process. "This is a way of moving assets from one generation to the next without involving outside financing."

Creative generational transfers, such as the Kellers', are critical for agricultural businesses. Farm operations are unique in that business assets command a high inventory value but earn a low rate of return.

"I find a typical rate of return on farm assets is 5% to 7%," says Urban.

"With return on assets being that low, it's difficult for the younger generation to be able to buy into farmland and business assets at the same time."

When Ryan Keller, 32, decided to join his family's dairy operation near Richland Center, Wisconsin, he and his parents, Gordon and Marsha Keller, spent little time wondering what transitional process would best work him into the business. Ryan would gain ownership in Kelland Registered Holsteins, Inc., by following the same path his parents had set out upon 25 years earlier.

CancelPost Comment
MORE FROM AGRICULTURE.COM STAFF more +

Farm and ranch risk management resources By: 07/07/2010 @ 9:10am Government resources USDA Risk Management Agency Download free insurance program and…

Major types of crop insurance policies By: 07/07/2010 @ 9:10am Crop insurance for major field crops comes in two types: yield-based coverage that pays an…

Marketing 101 - Are options the right tool… By: 07/07/2010 @ 9:10am "If you are looking for a low risk way to protect yourself against prices moving either higher or…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Improving Soil Health