Maybe not everyone in the family can come back to the farm.
Written for Farm Futures and initially published in the March/April 2025 issue.
A sustainable family farm has three components: unity, assets, and people. Last month, we talked about family unity, but today, let's talk about assets. Particularly long-term growth of family assets.
Family asset growth is one of the top three components of a sustainable family farm.
Farming takes a lot of capital. It takes a lot of time to grow that capital and takes a lot of reinvestment into the farm. One of the important key elements is that we need to find ways to keep those assets together so they are held together for generations. And that gets pretty tough because family size often grows faster than farm size.
Estate planning, if done incorrectly, can scatter the assets. You see, farming today requires a lot of scale in order to be competitive. We often think of estate planning as really avoiding taxes. And while that's important, I don't feel it's the most important aspect of sustaining the farm because our estate tax thresholds are fairly lenient.
Back in the old days, parents would give each of their children maybe a quarter or half section of land, which seemed to be fair. But what happens in this scenario is that every single generation has to buy back their siblings who aren't farmers, or they risk losing control. This can be financially daunting to the farmers.
Lifestyle and the number of families working in the operation can also impact family asset growth and wealth. It's hard to grow a farm as fast as you can grow a family. It's not uncommon for three children to come back to the family farm, all within a ten-year span. That is three more households that the farm needs to support before assets can be reinvested back into the farm. This often means that farm families live below their means or live in a way that they can reinvest a lot of the profits back into the operation.
And let's face it, sometimes there just isn't enough room. It's important to get a clear and honest picture of what is possible. How much is needed to support the families working on the farm? Can the farm support all of them without deflating its asset growth? Can it support them and grow assets? Sustainable farms that last many generations figure out how to maintain and grow their operations' assets.
There are some solutions that keep the assets together while still creating liquidity for those who ultimately want out of the operation. We often use land partnerships along with partner control agreements. In many cases, these can also be used to lower or eliminate estate taxes.
It is hard to acknowledge that maybe not everyone in the family can come back and farm. These are tough conversations, but they probably need to happen. That will then allow you to invest back into the farm and keep it growing and viable for generations to come.