Who Farms After You Retire?

Who Farms After You Retire?

Have a plan to retire and pass on the farm

Most farmers don't like the word 'retirement.' But it's a vital part of the farm succession planning process, says John Baker, an attorney and administrator of the Beginning Farmer Center at Iowa State University.

"My mission is to understand the farms and their families and to help smooth transitions," he says. "There are many key factors, including retirement, to consider when making farm succession plans, and recent research data is helpful in determining what works."

NEW WORD TO LEARN: Most farmers don't like the word 'retirement.' But it's a vital part of the farm succession planning process.

Baker and a late colleague at the University of Plymouth in England prepared a copyrighted questionnaire, FARMTRANSFERS, and have 17,000 responses. Surveys were sent to Iowa farmers in 2002 and 2006. In 2006 73% said they had not identified a successor. "Have you identified a successor and told them?" Baker asks. "The time is now, especially with the hugely increased land values."

Fewer young people entering farming is a planning factor. In 2006 the farmer's average age was 56, compared to 54.2 in 2002. "Half of the farmland is leased, and the successor's average age is 34," Baker says.

Think succession

Baker advises those new to succession planning to think like a successful planner. "You go to medical school to think like a doctor. You go to law school to think like a lawyer," he says. "So to learn the process of succession planning you must think like those who have such a plan, and how they were successful at creating it. Don't forget to bring alongside those experts who can help you the most."

Baker refers to three critical definitions. Inheritance is the transfer of land and other farm business assets to a succeeding generation upon the death of the owner of the assets. Succession is transfer of managerial control of the farm business to the succeeding generation during the life of the owner. Retirement is the withdrawal of labor and managerial control of the business by the owner.

Me, retire?

The research showed anticipated retirement plans. The average retirement/semi-retirement age is 67. In 2006 over 20% predicted retirement, while 35% in 2002 said they'll retire. In 2006 more than 45% said they would semi-retire.

Semi-retirement is withdrawal of some labor and management. "Semi-retirement means to go out every morning and see what's not being done," says Baker. "Other than that what will you do? If you never retire, will there be room for the next generation?"

According to the survey, the most anticipated method for transferring Iowa farmland is selling it to family and/or putting it in a trust. "The more closely the family members work together the more difficult the conversation about the business becomes because expectations and assumptions are made and remain unspoken," he says.

Even more difficult, he says, is the 40% who say the best succession plan is to divide the estate equally between all heirs. "That is a horrible succession plan because you're dealing with two different systems- family and business," he says. "Successful families, or ones you admire, are loyal, affectionate, supportive, empathetic, understanding and communicative. Attributes of a successful business include efficient, profitable, goal-directed, aggressive, effective, innovative and proficient. You don't see the emotional attributes listed under business traits."

Farm is a business

Separating emotion form the farming business is difficult but necessary if you're going to continue the business generationally, Baker says. "Honor the grandparents' legacy with the plan, but remove the emotion," he suggests. "A farmer often lives in and on their business, not just in the home, so a failure to treat the farm as a business is detrimental. The failure of the owner to retire is succession plan failure for those on the receiving end.

"You don't want heirs to think they're wasting their life waiting on parents to retire from farming, especially if the younger family is continuing to farm."

From a business aspect Baker reminds planners a family farm is a long-term, fixed, appreciable asset. "Owning farm land is not the same as operating a farm business," he says. "The term 'family farm' is an undefined term, where we often think of the family not as a farm. I like to say if inheriting farm land creates a farmer, then inheriting law books creates a lawyer."

Know the difference between succession and estate plans, he concludes. Baker advises that if the owner's priority is to continue the farm family business then a succession plan is needed. Assets, money, management, gifts, salaries and shares all need to be moved to the business successor. If the owner's priority is to continue the family ownership of the farm land, then an estate plan is need. That plan fragments the business to many heirs.

- Hayhurst writes from Terre Haute, Ind.

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