The hardest farm decision involves everyone

UNIVERSITY PARK, Pa. – If farmers hope to keep their operations in the family and running successfully, they better start talking.
Operating a family farm is not like operating any other business, explains Matthew Kaplan, Penn State’s College of Agricultural Sciences
Can’t fire family ties. Since the emotional cost of “firing” a family member is often quite considerable, farming families should try to work out disagreements to survive, rather than resort to more drastic action.
“Farm operations and business prospects are profoundly influenced by family relationships,” he said. “For small, family-owned and operated farms to survive and thrive, it is important that family members communicate effectively with one another.”
Few have plan. More than 90 percent of Pennsylvania’s farms are family-owned, but it is likely that fewer than half have developed detailed farm succession plans, said John Becker, professor of agricultural economics and law.
“Getting started to think about these questions is the most important step,” he said.
“Many families find it challenging to begin the process of thinking about who will succeed to the farm business and how other heirs who are not involved in the business will be treated.”
Becker said the most difficult question that many families face is whether to treat their children fairly in a business succession plan, or to treat their children equally in the plan, even though some are not interested in the business.
Face the tax man. The consequences of this can be surprising to those who do not plan and then are confronted with the results later, said Becker.
“If the farm is simply inherited by the succeeding generation of operators, inheritance taxes and other fees that could have been avoided or minimized may cripple the farm and its new owners,” he said.
“Inadequate farm succession planning may result in heirs who are incapable of running the farm business, family conflict over whether the farm continues in farming or is converted to a more financially productive use,” Becker said.
Potential battles. There may be prolonged legal battles over what the farm is worth to the estate and heirs, and partition of family-owned and operated farm business assets to satisfy heirs who simply want to ‘cash in’ their share of the business rather than invest in it, he added.
“For example, diminishing farm assets may stimulate older members of a family to worry about financing their retirement years, whereas young family members may be influenced to reconsider career decisions,” Kaplan said.
“When there is open communication and shared decision-making, there is less conflict, greater cohesion within the family and more agreement on basic issues within the family, and family members report less stress and more satisfaction with their family lives.”
Not easy. However, it can be an uphill battle to get families to communicate effectively, said Jon Nussbaum, a Penn State professor who specializes in intergenerational communication.
“We know that it is not easy to get families to communicate about important and serious topics that involve multiple generations of family members, such as caregiving,” he said.
“A discussion of farm transfer within the family is one of these serious topics that multiple generations of family members need to discuss, but unfortunately, often avoid.”
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Keeping it all in the family