Other highly valued assets, which are often considered for the non-farming heirs, may be the sale of development rights for the farm land which include oil and gas development contracts, wind farm development contracts and natural resource or farmland preservation values which could all be directed to non-farming heirs. In the case of an oil or gas well, the total income generated has the potential to be greater in value than the total fair market value of the land itself. Some farm families have established long term land holding trusts which generate rent income for non-farming heirs and still make the land available for the farming heirs. This works well if an option to purchase is also in place so the farming heir can buyout this arrangement in the future and continue the family farm for another generation. However, the non-farming heirs may consider themselves shorted if they do not have an option to cash-out their interest so having terms for a buyout needs to be part of the package.
As you can see, several aspects of a family farm transition often lead to and are linked to the estate plan that is tied together and must be in place. Every farm family is encouraged to engage assistance from individuals who have experience and understanding of this sometimes complex part of the farm business plan. Consider building an action team of professionals and family members who can work together to get your farm transition and estate plans in place. Doing this will greatly increase the potential that you will be part of a family farm that continues into the future.
Transitioning the family farm has been the focus of a five-part series of articles.
Steps in getting your farm transition plan in place:
- First line of paperwork is a will and/or trust (part one)
- Second step is to make sure you are maintaining a current and very detailed Balance Sheet inventory. (Part two)
- Next step are members of the family farm business setting goals? (part three)
- Next step developing a Vision for the farm business gives focus to a transition plan (part four)
- Next step balancing farm and non-farm issues that impact the farm business transition. (part five)
If you are part of a farm family wanting to keep the farm business alive and successful, it will take some effort and a common focus by the current and future generation of owner-operators. What is special about farming is that each farm operates with its own individual enterprises, resources, management styles and personalities that are different from the next one and so no universal plan will fit every situation. Additional resources and information can be found on the MSU Extension FIRM web site.