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Farm Transition: Where do we even begin?

Craig Roerick
Extension Educator-Stearns/Benton/Morrison Counties

July 9, 2011

Recently in central Minnesota, there have been a number of conversations about the decline in the number of dairy farms and number of retirements. This is not just happening here, but all across the entire state and nation. The number of dairy farms has been consistently on a downward trend, but the cow numbers are staying relatively constant.

Trying to figure out a method to keep our local dairy producers in business for generations to come is a big challenge. What process should a dairy farm family follow to make sure that the next generation will want to continue the dairy legacy that the family has worked so very hard for?

Making a farm transition is something that most families dread because there are many different ideas on how it should be completed and it is a very large undertaking. It is a topic many discuss for a moment but then continue to procrastinate to get it done until it may be too late. And, most likely there is going to be some cost involved to complete the transition.

First of all, there is not a standard way to transition a farm. What may work for one family may not even meet the goals of another. However, there are several common themes that have lead to many successful farm transitions and allowed the farm's family history to continue.

Preparing the transition plan may take the most time commitment and it can be stressful since the plan is going to require making choices about the future. It may be beneficial to put together a small team of individuals that have some familiarity of the farm. This team needs to include both the entering and existing parties of the operation. Others on the team could be the farm's attorney, accountant, and adult farm business instructor. Even if there is a cost for legal advice, when a large net worth is at stake, it is important to do it right. The non-farm heirs not involved in the farm operation should be informed of the plan and their input could be asked to reduce the risk of complications down the road.

What should be included in the transition plan? This is the part of transition planning that many families get to but then lose interest in completing it because details are needed. Goals of the farm are very important and help the transition planning team form a direction to work towards. Descriptions of how the livestock, machinery, building site, land, etc. will be transferred to the entering party should be included. The repayment schedules should be outlined. The rates of compensation and benefits for both parties, such as time off and vacations, should be included as well. Also, a decision should be made on who will handle some of the general responsibilities such as the checkbook manger and recorded keeping.

A very important part of the transition planning is to develop an action plan in case of a death, divorce, or a life-threaten injury. The plan should address any splitting of assets or who has options to buy out the other party. The plan should include a timeline in which the transition will be completed. Perhaps it can be done in 5 years or less. More realistically would be 10 to 15 years because of the large amount of assets that need to be transferred. It is suggested to not exceed 20 years because the prices set on the assets will change a great deal over that length of time. The greater the detail discussed and decided on during the planning process the better it will help clarify questions that could come up in later years. Be sure to put everything in writing as it helps force all parties to uphold their responsibilities.

When should a farm transfer plan be put together? Perhaps as soon as the decision has been made to move forward with a farm transfer. Or, perhaps it should be started the year before so it doesn't overwhelm everyone. Either may be okay, but just make sure the involved parties are committed to the transition before beginning. Completed transition plans can be modified or changed if necessary. However, all involved parties need to be included. The non-farm heirs should be informed when the changed plan is completed.

There are many other questions that need to be addressed to make the farm transfer successful long term. Always remember when doing a farm transfer, make sure everything aligns with the farm's and family's goals. This is the best way to ensure success of transferring the farm to the next generation and retaining the farm's legacy.

For further information, see a series of papers entitled, "Transferring the Farm".

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