Content ID

321075

How to plan a family farm transition

Start early. Farm transitions can take five to 10 years.

Farming was going well for Rob Olson as he no-tilled corn, soybeans, and wheat interspersed with cover crops. In 2017, though, the Hawley, Minnesota, farmer dealt with an issue he couldn’t use his farming skills to overcome — a tumor inside his chest attached to his spine. 

“The doctors did a biopsy and sent it to Mayo [Clinic] to see if it was malignant,” he says. “We wouldn’t get the results for 10 days, but the doctor did tell me I wouldn’t last long if it was cancer.”

Fortunately, the tumor was benign. Still, it spurred Rob and his wife, Lonna, to do some soul-searching about their 2,300-acre farm’s future.

“We had no transition planned,” says Rob. “I remember saying when we were waiting for results from Mayo, ‘Well, the farm is probably going to be history if I have cancer.’”

Deep Roots

Roots run deep in the Olsons’ farming operation, which dates back to the 1870s. Rob’s maternal great-grandparents, Simon and Ragnild Thompson, lived in a dugout for one and a half years before homesteading 160 acres near Rollag, Minnesota, in 1872. His grandparents, Rudolph and Clara Thompson, then farmed this land. Meanwhile, Thorval and Alice Olson, Rob’s paternal grandparents, also farmed in the Hawley area starting in the 1930s.

Rob’s father, Bob, began farming in in the mid-1960s after college and military service. Rob started farming in 1983, after graduating from college. Kari, Rob and Lonna’s daughter, joined the farming operation after she graduated from North Dakota State University (NDSU) in 2018. The Olson family still works both original farms and added acreage. 

“I was pretty involved when my grandpa and grandma retired,” recalls Rob. “Then I was directly involved in the transition between my mom and dad and me. Now it’s my turn.”

Kari will be the next generation of Olsons to manage the farm when Rob turns 65 in 2026. Another daughter, Nicole Strafelda taught school before Rob’s health scare, but then came home to help him farm while Kari finished college. She currently works part-time on the farm. Daughter Stacie Hinrichs also helps on the farm.

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The Olsons (left to right, Rob, Kari, and Bob) are preparing to transfer management of the farm to Kari.

The Next Generation 

Kari was a typical farm kid, often tagging along with Rob for the day. 

“That was just so much fun for me,” she says. “There was the freedom to go into the shop and build stuff. I would go for a ride on the four-wheeler and just be my own kid.”

Kari kept an interest in the farm, tending to 100 acres in the summer and on weekends while attending NDSU. Still, she didn’t seriously consider coming back to the farm full-time until her later college years.  

“My plan going into college was to get a job after graduation or go to grad school,” Kari says. After working for a decade or so, she planned to return to the farm.

However, Rob’s health problems surfaced even before his 2017 tumor diagnosis. He suffered a spell of Bell’s palsy during corn harvest in 2015. 

“Half his face was drooping,” recalls Kari. His hospitalization left Kari alone to operate the combine.

“It was the first time I had ever combined in my life,” says Kari. “Our grain cart guy was on the radio, saying, ‘You can do it!’” 

Kari combined with aplomb, and Rob recovered. Still, she rethought her planned career path. 

“If I was away for 10 years, I was going to be pretty lost [managing the farm],” she says. “I figured my dad could be my master’s program, and I could learn from him.” She currently owns 250 acres and rents another 450 acres. 

“Managing risk and the money is a different ball game than what most of my friends who graduated [from NDSU] experienced when they took a full-time job with a weekly paycheck and insurance,” says Kari. 

Still, she’s confident she made the right choice.

“I can’t think of another job I’d rather do,” she says.

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Rob, Kari, and Bob Olson check wheat kernels before harvest.

What to Do

“My grandpa [Thorval] farmed until he was 85,” says Rob. “I farmed 20 years with my dad before he retired. With Kari, we only have five years before I retire. So, there will be some differences in this transition.”

The Olsons have worked with Russ Tweiten, vice president of succession and retirement planning for AgCountry Farm Credit Services, to plan the transition. They also have met with attorneys to establish wills and other legal documents.

“There isn’t just one way to do it,” says Tweiten. Still, some common themes surface across all generational transitions.

Communicate, Communicate, Communicate

Communication is a major factor in smoothly transitioning a farm to the next generation. 

“We’ve been told that if you don’t communicate and have a plan, you can pretty much prepare for [family] war,” says Rob. 

Communication applies to all family members, whether or not they will actively farm. “Everybody’s a stakeholder to some degree,” Tweiten says. 

This means telling non-farming children the transition will not be equal. 

“I often deliver that message, but I want the parents there, too,” says Tweiten. “I tell them that their [active farming] brother or sister is making a commitment, and it will not be feasible for the farm to continue if everything’s split up equally.”

“My sisters understand the work behind the scenes of managing the farm,” Kari says. “I also understand without my family’s help of land and capital invested into this operation, I would never be able to start farming without them. My sisters have been considerate as well in this transition, knowing that fair may not be equal, but crucial for the farm to continue.”

Nix uncommunicated expectations. “When significant [transition] problems result, it’s almost always due to what I call ‘uncommunicated expectations,’” says Tweiten. “There may be a successor who has an idea about how things should work and doesn’t tell mom and dad. Or you may have a senior farmer expecting things from their junior up-and-coming farmer that they never tell him or her. The other party will have no idea what the other is expecting.”

To nix this, Tweiten first separately meets with children and parents. “This gives them a ‘safe place’ to talk and share their expectations before we bring everyone together,” he says. “Good transitions and good communication go hand in hand.” 

Know that management now subs for muscle. Historically, farm transitions occurred between fathers and sons. No more. Transitions to female farmers represent the switch from reliance on physical labor to management. 

“What I learned at NDSU is that you need to be more of a manager in the farm world now, compared to the muscle and strength you used to need,” says Kari. 

“When it comes to technology and having patience in setting up monitors and other technology, my girls have a great advantage over me,” adds Rob. 

Consider a prenup. Paul McCartney may have been able to settle with his second wife for millions of dollars when that marriage dissolved in 2008. The ex-Beatle’s lack of a prenuptial agreement doesn’t cut it in farming, though. Financial losses incurred through divorce can spur a farm sale or bankruptcy. 

“We will always have the prenup conversation,” says Tweiten. “These conversations can get very dicey very quickly. Not everyone will do one, and some just refuse to even talk about it. In those cases, our message is to have a trial period before transferring assets, especially if they [parents] have suspicions [about the marriage’s success].

“Prenups are an easier way to protect assets, but the process of establishing one is equally important,” he adds. “You have to do them right.”

Know when to let go. “You hear so many stories where a son is 70 years old, and his 90-year-old father still makes the decisions,” says Rob. “That isn’t fair to the younger generation. What I don’t want to happen is for me to say I will retire at 65 and then have Kari ask, ‘How come you’re still around?’ She is smart and picks up things quickly. I want to give her the opportunity to start making decisions.”

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Plan Now

Generational transfers are often difficult.

“The [succession planning] professionals have seen family fights,” says Kari. “My sisters and I want the farm to continue to be successful and to remain sisters who speak to each other. They may also have children who have an interest in the farm. If we can continue the farm to their generation and give them the opportunity my family has given me, I am all for it.”

Start planning early, as transitions often take five to 10 years to unfold, adds Tweiten.

“This gives families time to get professionals such as accountants, loan officers, insurance agents, and attorneys on board [for the transition],” he says. “It also helps parents mentally prepare and get comfortable with the fact that they're turning over their baby to the young person [or persons] they raised.

“You have only one chance to do this,” Tweiten adds. “You have to do it right.”

Challenges and Opportunities

Each generation of Olsons has faced challenges and opportunities. Thorval and Alice Olson endured bottom-barrel crop and livestock prices and dust storms during the 1930s. Times improved with better commodity prices in the 1940s and were coupled with exciting technological changes, such as tractors that replaced horses. 

Their son, Bob Olson began farming after college and military service amid the price-depressing grain surpluses of the 1960s. Still, farming was less capital-intensive than today, as a diverse mix of crops and livestock—and the manure they provided—helped reduce off-farm inputs. 

“We easily grew four, five, sometimes six different crops,” says Bob. “We had chickens and pigs and cows.”

More places to do business also existed. “We had a local trucker take 30 or 40 head [of hogs] to West Fargo [Stockyards in North Dakota] and put them in a pen,” he says. “Then you’d negotiate with two or three packers who would bid up the price.”

Times changed when Bob’s son, Rob Olson, started farming in 1983, as fewer livestock buyers existed. Each year, he would market hogs farther away from the farm, eventually traveling more than 260 miles away to a market in Sioux Falls, South Dakota. 

“It went from an open market with several processors bidding on hogs when I farmed to no competition at all,” recalls Bob.

Eventually such changes led to Rob exiting the hog business in 2013. Still, livestock presented an entry point for Rob to enter farming.

“It was more labor-intensive, but it didn’t take as much capital,” says Rob. “You just worked hard to build up enough capital to get into crop farming.”

Family help also eased his entry into farming. “I was able to buy some land in the 1980s because Grandpa [Thorval] provided me a down payment to get the loan,” says Rob. “The scariest part wasn’t about me. I had a college degree and if I lost everything, I could still get a job. My worry was more that I would take my grandparents and my parents down.”

Fortunately, the gamble worked. “Had I not bought that land, I wouldn’t be anywhere close to where I am today,” he says.

Rob’s daughter Kari faces lack of market access, just as her grandfather and father faced.

“I’m trying to get into different crops, such as flax and rye and oats. But elevators just concentrate on corn and soybeans,” she says. Sometimes they don’t even take wheat.”

Accessing a land base is a continual challenge. The Olsons no-till corn, soybeans, and wheat in that order and plant cover crops after wheat. They’re also tinkering with aerial seeding oats and radishes in soybeans and interseeding cereal rye and radishes in corn. 

“We do farm differently, with our cover crops and no-till,” says Kari. “People who want a short-term rental agreement or top dollar aren’t going to be interested. Unless it is someone who realizes the value of what no-till and cover crops can do for the land, I can’t really compete at this point.”

Fortunately, the landlords for whom the Olsons farm agree with their methods.

“I sat down with his [Rob’s] landlords and asked, “Would you be willing to rent to me?’” says Kari. “I’ve rented 450 acres so far, and they’ve been awesome to work with. In my opinion, there’s going to be a big shift in the way farming is done in the next 10 to 20 years in terms of conservation, and I think we’re a step ahead.”

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Three generations of Olsons — Bob and wife Helen, Kari, and Rob — farm near Hawley, Minnesota.

Stepped-Up Basis Worries Eased

Farm families who were concerned about how eliminating stepped-up basis would impact farm heirs may have some good news. A 2021 move to nix stepped-up basis now has little support in Congress.

“The loss of stepped-up basis would have been a big, big tax hit for agriculture and family members,” says Russ Tweiten, vice president of succession and retirement planning for AgCountry Farm Credit Service.

Current tax legislation brings farmland up to current values when inherited — the “step up” — rather than taxing the increase in value from time of purchase. Stepped-up basis reduces the tax burden if the property is sold after it is inherited, says Tweiten. 

As an example, farmland bought by parents 30 years ago for $500 per acre now has a current value of $6,000 per acre. Heirs opting to sell the land would start at a $6,000 basis, rather than the original purchase price of $500 per acre. Without stepped-up basis, heirs would be liable to pay taxes on $5,500 per acre, which is the difference between the original purchase price and current value, says Tweiten. 

“Depreciated assets such as machinery, grain handling facilities, and even unmarketed grain all receive a step up in basis, too,” Tweiten says. Heirs whose farm lost an owner to a sudden illness or accident would be on the tax hook for these assets without stepped-up basis, he adds.

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