Written by Wesley Tucker, Farm & Ranch Transition Specialist, University of Missouri Extension
For a moment let’s assume you are a typical Missouri farm family with three grown children. Two left the farm to pursue off-farm careers while one is an active part of the farming operation. When it comes time to plan your estate, who should get the farm?
This situation keeps many parents awake at night. Afraid of upsetting someone or making thewrong choice, they become frozen in fear. Often, they choose to do nothing and leave it for the kids to sort out when they are gone. The result can be a For Sale sign appearing on a significant chunk of the farm. This month I will celebrate my 25th year with University of Missouri Extension. Over the years I have learned that if you wish to avoid this conflict, possibly the best piece of advice I can give you is once you’ve had your first child – STOP!
Unfortunately, in agriculture we have a cash flow problem. If your son or daughter walks into the bank tomorrow and says, “My parents just passed away, I have inherited 1/3 of the farm, can you loan me the money to buy out my brother and sister?” What do you think the bank is going to say? I’m sure they will try to do their best, but at today’s land prices a loan likely won’t cash flow. Just think about it, could you yourself afford to start over tomorrow, buying your land, machinery and livestock at these market prices? Of course you couldn’t, so be careful about setting your kids up for failure by locking them into a system you have already admitted you could not do yourself.
Sometimes I get asked how business succession is different in agriculture than other industries. The reality is farming is a poor cash generator but can be an excellent wealth accumulator. We have all heard the saying, “farmers live cash poor but die asset rich.” Unfortunately, this statement is often very true.
Ironically, you never hear about succession problems with drug dealers, they have plenty of cash to make succession work. OK, maybe that’s a bad joke. But the reality is farming rarely generates enough cash to purchase the land at today’s prices, plus provide for your family. Why else do so many farmers require offfarm employment to get by. But the land keeps going up in value, making it an excellent wealth accumulator.
In non-farming businesses succession is often much easier because they don’t face the same cash flow problems. The son or daughter taking over the family dry cleaning business or restaurant uses the profits from the business to buy out their parents when they wish to retire. This provides cash the parents use to live on in retirement. By the time mom and dad pass away the business has already changed hands and there is nothing for the kids to fight over. But in agriculture, while there is a lack of cash flow, there is a huge wealth accumulating asset (land) creating dollar signs in some people’s eyes.
As a farm succession coach, I have three goals:
- Transition the business to the next generation
- Give the next generation a chance to be a thriving business
- Protect family relationships and harmony
We spend a lifetime building our legacy. If it’s important to you that one of your kids continues that legacy and is farming your land 10 years after you are gone, don’t lose sight of goals #2 and #3. This requires a well-thought-out succession plan. Don’t leave it for your kids to sort out after you are gone. That is possibly the quickest way to see a For Sale sign show up on part of your farm. Start the conversation today, it will greatly increase the chances of a successful outcome.
Wesley Tucker is a Farm & Ranch Transition Specialist with University of Missouri Extension. He has a master’s in agricultural economics from the University of Missouri specializing in estate and succession planning, farm labor management, and beef marketing systems. Wesley has 22 years of experience working directly with agricultural producers throughout the Midwest. As a succession planning specialist, Wesley trains and assists families through complicated family dynamic situations as they transition to the next generation so both farm and family have the best chance to be successful.
He serves on the national board of directors for Annie’s Project: Empowering Farm Women and the International Farm Transition Network. A Southwest Missouri native, Wesley grew up on the family beef operation in the Ozarks where he and his wife, Heather, a local veterinarian, and their daughter, Jordan, operate a commercial cow-calf operation today.
