Wyatt Fraas, our Farm and Community Assistant Director, has spent 20 years advising landowners and beginning farmers on farm asset and business transfer. The following is an interview with Traci Tiernan of FarmandRanchJobs.com. For her story, click here.
Retirement is when the owner departs from labor and management of the farm business. Retirement may not mean moving away or giving up on mentoring the next generation, but it does entail leaving management decisions to someone else. It can be a gradual or sudden process. It may be driven by long-term goals, health issues or events outside your family.
When should I retire?
The answer is related to choices and goals – and can happen at any time. While many farmers can’t imagine doing anything else except farming, their families may have other ideas and want to share more time with them. Discussions in the family can help design the retirement process. Check out a sample questionnaire here.
If I know I don’t have anyone to take over, when should I start looking?
Allan Nation, of Stockman Grassfarmer magazine, said a farmer or rancher is at his peak combination of labor, innovation and management skills at age 50.
To maintain or grow the farm business after 50 requires an additional infusion of labor and maybe of innovation. That often means a young partner with strong legs and back and with new ideas. This process can greatly improve the income of the business, which may be the means to fund retirement savings after a lifetime of investing in farm assets.
A farmer can look for someone to work into the business at any time, but a planned process will take several years of testing the relationship, training to the uniqueness of the business, and a gradual shifting of management. A five-year time frame can work well to ensure a smooth transition and to demonstrate steady progress to the new farmer. Add ample time for readying the business framework and selecting the best candidate.
How do I find someone to take over my farm? My family is not interested.
One farmer looked for two years, then found the perfect new farmer sitting beside him in church – they hadn't known that the other was looking.
Networks are the key to finding a successor. The basic approach is to tell everyone of your search. That creates the broadest possible net for finding the right person. Those who know you, and who respect your values and capabilities, will be thrilled to be a part of your successful search.
Look around your community to see which families are not welcoming adult children home to the farm business or where only one of several children may fit into the family farm.
In addition to your family, business, education and social connections, look to some institutions. Some 30 land-matching programs around the country will put your land opportunity in front of prospective farmers (click here for a list on our website). Many colleges and universities have internship programs for their students. For example, Nebraska College of Technical Agriculture requires its business-track students (in 100-Cow and 100-Acre programs) to take an intern position that leads to a partnership.
What makes a good match?
A perfect match is hard to find, especially if the senior farmer looks for a twin. A good match – a partnership for a few years or more – is much harder than a simple sale, where the parties may not even meet.
The senior and junior farmers will need to have compatible goals, expectations and work styles. Those attributes can’t be assumed to be in place and must be identified with intentional discussion. A worksheet for each person (spouses, too) will identify those attributes and allow discussion of each element.
This discovery process doesn’t end with a chat and a handshake. A written agreement that lays out work requirements, responsibilities, decision making processes, time off, specifics of pay, etc., along with the timing of any changes or transitions, will ensure that verbal agreements are not forgotten and that key expectations are defined. A sample template for such an agreement can be found here.
How can I train them if they are not experienced?
No one will have your experience with your land, so anyone would need training (or trial and error) to make best use of your farm’s resources.
Farming is becoming recognized as one of the “trades” that benefits from an extended period of apprenticeship under an experienced guide. You know how long it took you to gain knowledge of soils, crops, equipment, livestock, markets and farm business. You can substantially decrease the learning period and increase the chances of success for a new farmer if you train.
The process may be short for a new farmer experienced with your equipment, crops, livestock and facilities, or it may take an extended period. Your willingness and ability to share your knowledge will determine how much experience you look for and whether you choose to do substantial training.
A number of farms that do apprenticeships have developed training programs that address specific skills. You could adapt a training program to your operation and apprentice. An example is here. If you share training with another farm that has a slightly different approach to farming, your trainee could learn more, and you might save time.
Who do I need to contact when I decide to make the transfer?
While employment arrangements and simple business partnerships are essentially unregulated, legal aspects of your transfer may apply.
- Ownership exchanges have tax consequences.
- A structured partnership may require a legal agreement to enforce payments or to define the process of dissolving the contract.
- USDA farm programs may require documentation of how your ownership changes.
- Farm loans may be affected by ownership shifts.
Some transfer processes may be beneficial. For example, Iowa and Nebraska offer tax credits to people who rent assets to new farmers when a transfer plan is submitted.
Consult with your lawyer and tax advisor for how a transfer may affect you.
What steps need to be taken in order to have a successful transfer?
- The landowner needs clear goals of the transfer outcomes.
- Both parties must have agreement on the transfer goals, processes and timeline.
- Extended family needs to know what the agreement is and may be involved in goal setting or negotiation.
- Both parties to the transfer must trust that the agreement will be honored and completed.
Additional elements and steps are described on our website.
Is it wise for me to be involved in the operation after the transfer?
A new farmer will benefit greatly from your knowledge of your land and from your experience in the business.
However, the transfer process will turn over management and decision making to your successor, who has different skills than you, in a market and regulatory climate that differs from when you farmed. You have to be prepared to accept that decisions will be made that will not match yours. If you can't stand aside and watch successes and mistakes with your opinions silent, you're not standing far enough away.
Are there standard succession plans for a five-year or 10-year period?
There is no standard plan, since that will depend on the goals and capabilities of you and your successor. However, substantial progress should be made within five years, with a written plan that sets out the steps and timeframe. As mentioned earlier, here is a template for starting a plan.
Is a gradual transfer best or should it be all at once?
Timing of the transfer will depend on the goals and capabilities of you and your successor. But consider young farmers who have taken over upon the death of a parent. They always wish they had more time to learn alongside their parent.
How can I be sure the farm will still be operational after the transfer?
Checking references of a candidate is always a good idea. In addition, a testing or probationary period can be helpful for both you and your successor. You can assess how well you work together, how your daily priorities match up, if you share a common commitment to quality of work, how you deal with setbacks, etc.
A trial period where the prospective successor is paid for labor can be the first step to enter into a phased transition plan. However, there are no guarantees of the farm business surviving the transfer, or indeed, from any year to the next under your control.
You have lived with that uncertainty and have built a business that can withstand financial, weather and market risks. You can pass on some of that wisdom to your successor, but ultimately he or she will have to make business decisions in a world that has changed since you were the primary manager.
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