Farm couple with multiple heirs thinks several generations ahead

The Problem (submitted by email from K.B.)

We own 1,500 acres and rent another 3,000 acres. We also have income from trucking, excavating, and livestock facilities. We feel blessed that two of our sons are back farming and our one daughter is married to a farmer across town. Our fourth child is a dentist. We want the farm to stay together. In general, all four children get along. On the farm, most days our sons get along, but not always. Both of them already have children who love farming. We feel like we really need to be thinking several generations ahead. Do you have any ideas?

The Solution

You are wise to be looking ahead several generations, K.B.:

1. Your son who is a dentist will likely have a great income, but don't hold that against him. He could be a silent owner on the farm, but that usually does not end well in the long term. A suggestion would be some cash equalization, likely from other assets or life insurance proceeds.

2. Your daughter who's married to a farmer likely would love some farmland, but there's only so much land to go around. She could get a percentage of a land LLC, but that too will become a challenge. As a result, again it would likely be better for her to get cash, which she could use to add land to her and her husband's operation.

3. Now we get to the elephant in the room with your two sons farming together. Seldom do two people get along perfectly. You have a couple of options. One option is a land entity that holds the land together and then includes rental and buyout options for future generations. For now, you would not need to worry about dividing parcels or trying to be fair with soil quality, tile, irrigators, tillable acres, etc. You'd avoid problems that someone else may need to face later. Some love the idea of a land entity while others see this as kicking the can of problems down the road. Adding generations and cousins often only increases the challenges.

The second option: Identify parcels that give each farming son some individual land parcels – then they can choose to continue farming together or separately. The challenge with dividing land is trying to be fair with similar values or acres, often starting with the home farm. The benefit to dividing the farm between two farming heirs is that they can decide how to do things for their own families in the future. Keep in mind your plan may be a combination of dividing some land plus a land entity. The land and machinery/corporation may not be divided the same way.

The recommendation to divide the farmland often goes against my grain. I really like to see farms kept together. However, sometimes we just have to be honest and recognize that dividing some assets may be better for the heirs. Farming together might be the most economical, but they would have the land in a position where they could make decisions independently.

On a separate note, you should have a conversation about the rented land. Yes, I know this is not under your control, but this too can get a bit odd as brothers potentially start to compete for rented ground.

People can get very emotionally attached to keeping everything together, but when you have multiple farming heirs, the best approach might be to divide some of the assets.

Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. For the past 21 years, he has worked exclusively with farm families across the Midwest to develop farm transition strategies. Friesen grew up on a Mountain Lake, Minnesota, farm. He owns and operates a 1,070-acre crop and livestock farm with his wife and four children. farmestate.com