Road Map to Success

Written by Michael Baron on . Posted in Farm versus Non-Farm, Transferring Ownership

Dear Michael: We have just two children – a son who is not interested in farming at all and a daughter who married a neighbor boy. They’ve been married a few years and they have a little boy together. Last year we hired our son-in-law to work on the family farm on salary for the first year. We would like to know how we set up our estate plan when the son isn’t interested in farming and the son-in-law is our most likely candidate to farm? What are the ups and downs of working with an in-law? – Thinking Outside on the In-law.

Dear Thinking: Most people would assume this is a gender neutral problem – what difference does it make if the next generation is your son or your daughter?

However, in most cases, the actual business and labor of farming occurs with your son-in-law rather than with your daughter – unless she is actually the one doing the farming and not your son-in-law.

As such, it’s hard to leave him outside the circle when it comes to planning for the year ahead or for decades ahead in your estate plan. The longer he stays with the family farm, the more he’s going to be ensconced into the business. You’ve started him off on salary – which at this time means he is an employee and nothing more – but it sounds like you have hopes he would be more.

To that end, I would ask your daughter and son-in-law if they’re actually are interested in taking over the family farm business someday? I’ve had quite a few young people say ‘No thank you’ when approached with actually running and managing the farm business in the future and are perfectly happy with getting a salary.

If they are interested, then we need to lay out a ten-year plan for them.

This would include how they are going to start acquiring equity in the farm business over the next ten years – usually starting with machinery.

As machinery needs replacing in the future – don’t buy machinery just to accomplish this – take some of your rented land, calculate approximately what the profits you would have from some of this land and let your son-in-law do the farming on this land. If he has a normal year, he will have the machinery payment due at the end of the year. Then use your trade-in and his payment to buy the new piece of equipment as joint owners.

Explain to your daughter and son-in-law that over time, this method of transferring first joint ownership and eventually full ownership of the equipment is how they will eventually take over the farm business.

Also explain to them that over time you are going to let them derive their income from farming and the sale of crops – not from salary. They should not get too comfortable receiving a salary each month because each year you are going to reduce the salary and increase the number of rented acres they farm.

We also need to show them how they will be able to deal with their non-farming sibling someday on the ownership of the most important asset – the land. They need to understand if they will be able to buy out his share – rent his share – or acquire that share of the farm business.

The more we explain to them today what the roadmap for the future is going to be, the better they can make decisions to either stay on that road or choose another career for their lives. You can’t plan your lives – especially in farming – without things laid out for them – giving them targets to hit along the way.

As long as you are here to help them, and this is the road they want to be on, the more successful we will be in keeping this family farm in the family.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.