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Passing the Farm to a Grandchild

Can their problem be solved?

The Problem:

Submitted by K.S., via email

My wife and I are experiencing a new level of problems in planning to pass the farm on to our grandson.

Our farm has been around for five generations and has slowly grown to a nice farm with 800 owned acres. Over the years, many families have been fed by this farm. The farm always seemed to get passed down to a son in the next generation. For my wife and I, the difference is that we have three wonderful daughters and no sons. All of our children have at least three children of their own. One of my daughters married a wonderful young man who loved farming, so we farmed together the last 15 years. They also brought their son into the operation and things were going great. Then my farming son-in-law died from cancer this past year. Now, we have some turmoil because two of my daughters do not want the farm passed on to my grandson. They have told me they would never sell the farm, so apparently now they want ownership, and it’s hard to figure out a solution. I love my farm and my family.

The Solution:

Change can cause stress. Having a family meeting is sure to generate a huge variety of opinions. Your viewpoint would be to keep the farm together. Your daughter with the farming son would have another viewpoint, as she may be looking at what’s best for her, what’s best for her farming son, and also what’s best for her children who are not farming. Your two daughters who are not farming have the mixed emotion of knowing the intent for generations, and how this affects their own inheritance and their children’s inheritance. 

It’s interesting that your two daughters didn’t have a problem passing it on to their sister as long as her husband was farming, but now that it’s going to a grandson, opinions have changed. Ultimately, that likely would have happened anyhow. Observing others’ perceptions is always interesting.

A land-owning entity is an option, but 800 acres represents significant collateral that could be used to expand the farming operation. Once you put the land into the entity with family members having different goals, those assets would have limited collateral value for future purchases. Translation: The operation may be done expanding at that point. Time would need to be spent on a clear operating agreement and rent formulas and options. 

Ultimately, somebody will want out of the operation. You could lock things up tight so they wouldn’t be able to sell, and that could cause some tension, but it may accomplish your goal. You could allow them to sell, which means you should include a pricing formula, and those who intend to buy will need a plan so they have some cash.

Some people don’t like life insurance for a variety of reasons, including past experiences. However, in your situation, there may be some value to the insurance if coordinated with some type of buyout for machinery or home farm. 

For example, your farming grandson could get the home farm and the machinery in return for cash going to other family members. Some additional land could then go to your grandson, subject to his mom’s life income. Then the balance of the land could be held in an entity with everyone having ownership with guidelines for rent and buyouts.  

Your problem can be solved for your children, grandchildren, and operation if done properly. There will always be differences of opinion. I hope that your plan can minimize those differences.

By Myron Friesen

Your Transition Team Members

Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. During the past 17 years, he has worked exclusively with farm families across the Midwest to develop farm transition strategies. Myron grew up on a Mountain Lake, Minnesota, farm. He owns and operates a 780-acre crop and livestock farm with his wife and four children. farmestate.com

Dr. Donald J. Jonovic is founder of Family Business Management Services in Cleveland, Ohio. He focuses on management, growth, and ownership transition issues. familybusinessmgt.com

Jolene Brown is a professional speaker, author, farmer, and family business consultant. Her tested business tools provide leadership and management solutions for the people who feed, clothe, and fuel the world. jolenebrown.com

 

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