UC Small Farm News, May/June 1995

The Other Farm Crisis

by David Pratt, UC Farm Advisor, Solano County

"If we don't change the way we are headed, we will end up where we are going."

It is my observation that the biggest problem on family farms and ranches isn't economic or financial. It is not an animal husbandry problem or a problem with the environment. It isn't the animal welfare folks or the environmental movement. It's much closer to home...in fact, it is home.

Most of us know families where brothers don't talk, except through their lawyers in a court room. We know frustrated "kids" (in their 20s, 30s or even 40s) who wonder when their folks will give them some management responsibility and authority. We know parents who wonder when their adult children will show some initiative and take on some management responsibility.

The biggest problem in agriculture is very nice people with different needs and vastly different perspectives trying to thrive within a family farm or ranch. It's the adult kids who are ready to take on some risk and expand the business (just like their folks did 30 to 40 years ago). It's their aging parents who worked dawn to dusk (and beyond) to build what they've got, and who now want security. They expect the kids to take on responsibility, but keep authority and control for themselves. The result: the kids remain well paid (sometimes) hired hands with the silent and unintentionally cruel promise that "someday this will be yours"...if they remain. It should surprise no one that the kids often don't remain. It's the biggest problem in agriculture.

In their book Passing Down the Farm: the other farm crisis Don Jonovic and Wayne Messick say it doesn't have to be like that. In the book they point out ways to recognize the difference between disagreements about facts and disagreements about values and describe ways to react to each. They offer insight into what makes your father, mother, daughters, sons, brothers, sisters, and their in-law counterparts do and say the things they do (or don't). They build a convincing case for bringing farm heirs into the ownership process "in ways more formal than chance and more sensitive than probate."

Jonovic and Messick argue that a comprehensive estate and management succession plan is essential and explain that any good plan is supported by four pillars:

Pillar 1: Deciding Who's Going to Run the Farm

A management succession plan that delineates the transfer of authority, responsibility and control is an essential part of an estate plan. Don't wait until Dad dies to begin the management succession process.

Pillar 2: Deciding Who's Going to Own What

We tend to see our farm or ranch as our "legacy." That legacy is something we want all the kids to benefit from. However, we confuse "ownership" with "benefit." The authors suggest ways in which everyone can be treated fairly and point out that "fair" doesn't necessarily mean "equal."

Pillar 3: Assuring Liquidity and Security

Provisions made to provide enough cash to pay the taxes that are going to be due. Provision must also be made for a stable and liquid source of income for the folks when they retire, and eventually for the survivor of the two.

Pillar 4: Minimize Taxes

There are a lot of ways to minimize the taxable value of a business, establish gifting programs, or transfer equity growth during the owners' lives. These are complex solutions and require expert professional help.

Passing Down the Farm: the other farm crisis is an excellent book that addresses the unspoken issues that drive families apart. It will give you a better understanding of the people you love that drive you crazy. It provides important guidelines for building a strong estate plan that meets everyone's needs. It can be purchased from Jamison Press.

For questions concerning this article, contact David Pratt at (707) 421-6793; e-mail: dwpratt@ucdavis.edu.