Successful farm transitions require time, effort
By Jean Caspers-Simmet
Date Modified: 03/05/2013 9:17 AM
AMES, Iowa —Transitioning a farm from one generation to the next is time consuming and complex, but when families make the effort to have the difficult conversations, they are more likely to end up where they want to be.
Practical Farmers of Iowa members heard how several farming operations have worked through the transition during the group's recent annual conference in Ames.
Jim Munsch, who has an organic grass-based beef operation in Coon Valley, Wis., and who also is a business consultant with vegetable, beef and dairy growers, described how he used a conservation easement to make sure his farm would continue.
Estate planning is more than figuring out what do with the assets, Munsch said.
"The best place to start isn't with the money and assets, but to make decisions about how you want to conduct the last part of your life," Munsch said. "It's a very personal conversation that you need to have with your spouse and then with your kids."
Munsch said some farmers approaching the latter part of their lives want a change. They want to move to town and do the things they've always wanted to. They have the money to handle the expenses until they and their spouse die and maybe have some money to pass on.
Others want to remain involved with the farm while bringing on new management.
Munsch's 86-year-old neighbor, who spent his life milking cows, still likes to go to the barn at 4:30 a.m. These days, he sits on the manure pump, smokes a cigarette and watches the younger generation. His wife, who likes to travel, has pursued that interest with a daughter.
If a couple decides they want to maximize the value of the farm assets and use the proceeds to structure a retirement life elsewhere, the action plans can be simple and put in the hands of a tax person, lawyer and folks who can sell the land and other assets, Munsch said.
If they want to see the farm enterprise go on, then they have to deal with both the assets and the ongoing business.
Legacy can be more than the business, Munsch said. Land stewardship may be something a family wants to safeguard. The most certain way to do this is to construct a legal amendment to the deed.
Munsch created a conservation easement prohibiting residential and commercial development, mining or other activities that would degrade the farm. Because his farm is steep and hilly, it must remain in grass.
"There are a number of land trusts that can help by assisting with the documents to accomplish this and agree to enforce the terms of these amendments in the future," he said.
Such steps can reduce the market value of the farm, but the difference between market value and the value after taking into account the easement is a tax-deductible gift that can reduce income taxes, Munsch said.
These restrictions attach to the farm, but the property is still his and can be used, sold or willed to heirs as long as the restrictions are complied with. His grandson is working into the farming operation.
Munsch said it''s important the transition process start while farm couples are in their 50s. If the plan involves buying life or long-term care insurance, the cost will be significantly less if they buy the policies before they pass their mid-50s.