Farm Families Challenged to Deal with Emotional Side of Farm Transfers

Charlene M. Shupp
Espenshade
Special Sections Editor

BALTIMORE — For the past 36 years, Dr. Ron Hanson has been on a mission to help families successfully transfer the farm without a family breakup. It has personal meaning because Hanson was the product of a family farm blowup between his parents and grandparents.

Hanson, of the University of Nebraska, spoke at the American Farm Bureau Federation (AFBF) Young Farmer and Rancher conference here Feb 16. He stressed that the “family side” of farm transfers is difficult and challenged young farmers not to believe that just because they return to the family farm, it will easily pass onto them in the future. He has countless heartbreak stories of young farmers returning to the family farm, who were back in Hanson’s office 20 years later looking for work because of a transfer failure.

Hanson shared that his farm was taken away when he was 16. One night an argument between his parents and grandparents ended his farm life. The farm was lost and his family became estranged. It still remains the same 46 years later.

Hanson said young farmers should not just believe in “sweat equity” as their investment into the farm. The older generation needs to give some financial assistance to help them grow their net worth. If not, the younger generation needs to take a hard look at their situation and make the hard choice on whether it is time to leave the operation in order to have financial security for their family.

“When you talk about the farm going from one generation to the next, no one ever talks about family,” he said. “Yet, the family is where it happens ... It’s the one part of this issue that never gets discussed.”

Emotional Process
His talk was entitled, “You can buy the family farm, but remember I still own it,” after a memorable discussion in his office between a father and son trying to transfer the farm.

When a farm is passed among several generations, the process can be very emotional — not only for the members involved, but also the non-farming siblings as well. One challenge, Hanson said, is that the children never really leave home. The children have left for non-farm careers, but they are still emotionally tied to that farm. While in their minds they understand why the farm might pass onto the farming sibling, it emotionally could be difficult.

“Those (transfer) issues have to be resolved to everyone’s agreement,” he said. Families must talk openly about the farm’s transfer and give an opportunity for all sides to air concerns. Refusal to address concerns will only lead to trouble down the road.

“While mom and dad are living, parental influence is very important. Children will never say or do anything to upset the parents,” he said. However, once the parents are gone and if one child is upset, they will come to the table wanting to “get even” in the settling of the estate, cost will not matter.

“There is nothing that puts family values to the test like money and property,” he said.

‘One Big Secret’
Farms, where nothing is in writing regarding the transfer, and everything is “one big secret,” places all generations of the family at risk. Hanson shared stories of families where, when once something happened one or both of the parents the farming children lost the farm because nothing was in writing.

He told young farmers without transfer plans in writing are taking “one big gamble” with their futures. He challenged young farmers to take control of the situation.

He said they should tell their parent, “I came home. I have been here. I worked, I stayed. I helped. I made the commitment and the sacrifice that the other children in this family didn’t make. But now I have a family and I have children. And for my children to have a future, I have to have a future. If you can’t tell me what my future is, than maybe I will have to find my future elsewhere, because I owe to my children that I have a future.”

Be honest and set a deadline, Hanson said..
He called it essential. If nothing is done or discussed, the farming children run the risk that they will get the same share as the non-farming children when the farm is passed on.

“If you are out there with nothing but a hope, dream and a promise, you might be taking one heck of a risk. You might find yourself at 40, 50 years of age with nothing,” he said. “Then what are you going to do. You must take control of this situation. I am tired of the tears in my office.”

The non-farming children need to be addressed in the transfer and estate plans. The plan is not a question of love, but a question of fairness. The parents must set aside the feelings of favorites. Otherwise jealousy will grow among the children.

“This takes a lot of thought and discussion to work through these matters,” he said.

He said parents have a responsibility to develop the plan. The plan needs to be done “fairly and equitably not equally, because equal in a farm family is never fair.”

Parents need to stand unified together on the plan. They also need to communicate to the non-farming children what they will someday get from the parent’s estate is partially a result of the farming children’s work on the farm. It helped to increase their financial worth.

Once the parents have made their plan choice, the children should respect that choice even if they don’t agree.

Why should parents secure the transfer of the farm? There is a change in attitude of the non-farming children because of the farming boom that is happening right now. According to Hanson, the non-farming children are coming back to the farm, seeing the rise in farm values, and asking, ‘where is my share?’

‘Sweat Equity’ Is No Equity
“I don’t believe in sweat equity,” said Hanson. “Sweat equity never pays. It is never rewarded.”

Hanson defined sweat equity as the unpaid value of farm work based on the promise that for years of hard work, the child is unofficially buying into the operation.

He tells parents when they are bringing children into the farm, the parents have to assist the children to build their own assets from the beginning, building the next generation’s net worth.

He gave an example of a farm where the estate plan has been laid out and everyone knows that the farm will pass on to the farming child. However, the child has never been given any farm equity. Suddenly the father has an unexpected health setback and accumulated medical bills. The only way the parents see to recoup the money needed is to sell part of the farm. The farming son has to suddenly pay top dollar for the property up for sale. The only collateral the child has is a farm truck. The parents won’t co-sign the loan because they need the cash, not more debt. Suddenly a portion of the farm promised the child is sold to someone else. The child’s sweat equity is worth nothing.

“That’s why I don’t believe in sweat equity,” he said. Parents need to work with children to establish their net worth so, when the unexpected happens the child has the ability to take over.

Who Is Family?

The classic farm family problem is defining what “family” is. Is it just the blood relation or is it the in-laws as well? Daughters-in-law are the most common problem in farm transfers for parents, according to Hanson.

The biggest fear by parents is if they start the farm transfer with the son and there is a divorce, daughter-in-law gets half of what the son owns. To bail him out, the parents will have to pay. This fear is constantly repeated in Hanson’s office by parents as they look at transferring the farm. The parents’ desire is often to keep her on the outside of the conversation. Hanson said this is recipe for disaster.

Keeping the farm a secret from the in-laws “will backfire every time,” he said. “It will come back to haunt you.”

Mistrust builds because the decisions are being made that impact the in-laws’ lives, and the in-laws have not been a part of the conversation. It usually will harm the marriage and the family relationships.

“The thing you have now created is suspicions. Once you have created those suspicions, within a family, you no longer have trust,” he said.

Without trust and respect, families will be unable to resolve issues to transfer the farm. Without respect, families will be unable to resolve the difficult issues.

“Once you destroy trust, you lose respect.”

While Hanson is supportive of prenuptial agreements, especially for larger farming operations, they need to be handled with tact, openly and carefully.

“No one ever gets upset when they are treated fairly,” he said. The agreement should be written fairly for all parties and with no last-minute pressure to sign.

Hanson said these contracts are more important with second marriages and stepchildren. The contract could be as simple as stating that what the husband brings into the marriage goes to his children, what the wife brings to the marriage goes to hers and what is gained during the marriage goes to all the children.