Family Members Learn about Farm Transitions

Anne Harnish
Food and Family Features Editor

HAMBURG, Pa. — A 50-year-old farmer from Fleetwood, Pa., attending a recent workshop on farm succession with his 26-year-old son, wants to avoid making the mistakes of a previous generation; although the family farm remained intact when it was passed along to him, the family incurred steep financial losses to inheritance taxes. He came to the workshop so he could learn how to gradually transfer ownership of their 200-acre farm to his son.

The farm succession workshop was hosted in Hamburg this month by the Penn State cooperative extension.

Penn State’s Keith Dickinson, an ag business management educator, spoke to the group about the increasing need for farm succession planning. For one thing, he said, farmland was easier to buy 10-20 years ago for those grown children who didn’t inherit a family farm. Secondly, there are more divorces now, which can result in the sale of a farm to pay divorce costs. Third, taxes are higher, and selling a farm may seem the only way of paying them.

Dickinson stressed the importance of communication and planning in the process of farm succession, which ensures that farm businesses stay viable and intact through family transitions. For many, attending the workshop was a first step.

Transitions should be gradual, and must include training the younger generation to effectively manage the farm so that the older generation is confident it will be managed well once it is taken over. For example, Dickinson told of a scenario in which a farmer was injured at the same time his wife became ill, leaving their son to handle everything on their farm without any training.

Communication about farm succession is typically a sensitive topic, said Dickinson. A succession plan must address the needs of everyone in both generations.

For some farm owners, it’s about an “inability to give up control,” said attorney and professor of ag economics, John Becker, at the workshop. Also, fears of making decisions, or of not having enough income to take care of themselves in old age, stops some from preparing a succession plan. But, “the failure to plan, does create a plan,” by default, he said, often involving the state and federal probate process making determinations.

Ron Bare, of Bare Financial Services, was at the workshop to discuss the many options available for farm owners in their farm succession planning process.

Bare said many of his older clients struggle because they are scared to retire; they are not sure what “retirement” means. He suggests to them that they take some time to think about what they want to do in life, and that it can be exciting to contemplate. “Retirement planning is not difficult, once ideas of what to do are decided,” said Bare. “Then it can be planned for.”

According to Dickinson, in most cases a disproportionate amount of farm assets must pass to the farming heir if the business is to continue. In creating a succession plan, there are strategies for paying out cash equivalents to the other non-farming siblings, such as a life insurance policy, which is not taxed.

Even without a non-farm sibling, a life insurance payout can prevent “chaining” an heir to a farm short of cash, said Dickinson.

One farmer who attended the workshop expressed frustration and anger at the lack of succession planning within his own multigenerational family. “I’m 50 years old, and I’ve been a dairy farmer my whole life,” he said. “I don’t know how to do anything else.” He said it was difficult in midlife still to be without any ownership of the family dairy.

Another participant, a 56-year-old Berks County farmer, said, “It used to be easy to pass along a farm, but now it’s complicated with all the taxes and other things.”

The only way to begin the farm succession process is by talking about it.

Dickinson advised setting several meetings with family to discuss farm transition, and finding out about other family member’s goals and abilities.

And, said Dickinson, older generations should ask themselves, “What will happen to my farm business when I can no longer operate it? Do I want my children or heirs to be able to operate my farm business in the future?” Meanwhile, members of the younger generation should ask themselves, “Do I want to operate my parent’s farm business in the future?” And both should ask themselves: “Have I communicated these wishes to the other generation?”

There are many rewards to be gained by communicating about a farm transition, said Dickinson, including less stress and potential tension in the future and improved family relationships.

Resources exist to aid families in succession planning. One is the Center for Farm Transitions in Pennsylvania, at (877) 475-2686, or online at http://iplantofarm.com/.

A Farming Through the Generations short course will be held on Tuesdays in February (2, 9, 16, 23) at the Blue Mountain Family Restaurant in Shartlesville, Pa from 10 a.m.-2 p.m. Folks who are interested should contact Keith Dickinson at (610) 696-3500, or e-mail to krd16@psu.edu.