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Navigating the Road to Succession
What veteran farmers and young farmers should consider when it comes to property acquisition
STORY BY JEFF HUTTON
For so many experienced farmers, they have spent nearly their entire lives building a business and caring for the land. They have created a legacy.
Younger generations, meanwhile, are just starting out, learning to navigate farm life, the complexities of acquiring land, raising a crop, and establishing their own legacy.
But being able to bridge one generation to the next and keeping those legacies intact is not easy.
Experts in both banking and real estate say farm transition can be smoother if communication and planning begins sooner than later.
Be proactive
Jake Porter, a commercial banker/ lender with Community State Bank in Ankeny says farmers, whether they are handing down their farming operation to their children, neighbor or someone else, must be proactive.
“One of the key things in transitioning a farm is to get out in front of it,” he says. “They need to start the conversations early and determine what both sides are hoping to achieve.”
Porter says too often, both sides in the acquisition and/or sale of a farming operation wait until a farmer is nearing retirement or there’s a serious health or family issue that arises.
He says the conversations that must occur need to happen years prior to make any transition or estate transfer smoother. And those conversations should include others — third parties that can assist in a multitude of areas.
“It really needs to involve some of the people who are advising that farmer, like the banker, the accountant, the attorney,” Porter says. “They offer multiple perspectives and can offer valuable resources. You can’t be afraid to involve those people because they know the intricacies and can help with planning in the most effective way.”
Communicate often
“The first three things to know: communication, communication and communication,” says Bob Allen, president and CEO of Home State Bank in Jefferson. “Between the farmer, their spouse, their successor, banker, attorney, agronomist and members of your team, you have to talk ahead about what you want to do.”
And while every farm transition is different and family dynamics are unique to each operation, the bottom line, Allen says, is there has to be a plan.
Allen knows firsthand because he, too, farms about 1,000 acres alongside his brother.
“I’m in this battle, too,” he says. “It’s important you have a plan, especially with
Iowa farmland, because the process can be complex; it takes time and consistency.”
For younger farmers, Allen says an initial business plan is key, although they know that plans can evolve and adapt.
“It’s really important for them to share their goals. Do they have a desire to rent or own farmland? They need to start talking to those who need to know,” he says.
Communicating those goals is more than just having one conversation over the kitchen table between those involved in the transition.
“From a beginning farmer standpoint, probably the biggest challenge is talking to a spouse about what they want,” Allen says. “Farming is a tough business and it takes a lot of money, a lot of capital.”
Farm equipment, alone, is a challenge because of depreciation. How do you transition that to the next generation?
While it’s difficult enough for a younger farmer to get started, Allen says retiring farmers may find it even more frustrating.
“I think for retiring farmers, I think they might find it harder to get out of farming because they are slowly losing control of what they’ve had for so long,” he says.
And if transitioning to more than one child — say two or three successors — that can add another layer of complication, Allen says.
Hard conversations
Duane Petty, a real estate agent with Century 21 Signature Real Estate in Marshalltown, has seen those concerns with farmers who want to pass down their operation to his or her son or daughter, or multiple heirs.
“You have to have those deep conversations,” he says, “because you’re talking about a lot of dollars.”
Petty says if there are multiple heirs, but perhaps only one child wants to continue farming, farmers must consider how to properly divvy up the land and the overall business.
“From my perspective, you want to keep ahold of that land because that’s where you build your wealth and your net worth,” he says.
Petty has witnessed the division and anger that can arise when family members, like multiple children, want to do different things with the property they’ve acquired from their parents.
“A farmer really needs to know what each of his or her children’s goals are because determining who gets what or how the farm should look like in the future is important,” he says.
Those conversations can be difficult. Petty related a story where there were three siblings — two sisters and a brother — who were going to inherit their father’s farm.
The sisters, he said, wanted to divide the land three ways and each could then sell off their parcels. The brother, however, wanted to continue farming, hoping to acquire all of the rich farmland his father had cultivated and continue the family legacy.
“He felt like he should get some sort of a break because he was going to continue to farm,” Petty says. “But the sisters wanted to sell, get their share and move on. Unfortunately, their parents had no plan in place and very difficult negotiations occurred. And with that kind of chaos, people can be savages.”
Petty says having those hard conversations, as well as meeting with a realtor and financial planner early makes much more sense than waiting until the last minute.
“With planning, you may not agree on everything, but you can learn to compromise, and everyone needs to be involved,” he says. “Whether it’s farmland or a house, promises made by your parents don’t mean anything unless you have the arrangements all worked out.”
Finding success
Porter says transitioning from one generation to the next means everyone needs to have a voice, especially the veteran farmer, who will often find letting go the most difficult.
“You can’t just flip it over in one day. It takes time,” he says.
Porter agrees the transition must focus on the end goal.
“In most cases, it’s to see that the farm stays in the family and keeps going,” Porter says.
There’s also the concept of managing expectations, because transitioning the farm from a farmer to the next generation may not look the same for all involved.
“Everyone has different ideas,” Porter says. “The younger farmer might want to try different things and operate differently than his or her father or grandfather did. Success can look differently for everyone, but both sides must be open to that.”
Contact Jeff Hutton at jhutton@iasoybeans.com
Transition tips and talking points
According to Iowa State University (ISU) Extension and Outreach, a sizable portion of Iowa’s farmland is currently held by individuals aged 65 and older.
In 2022, approximately two-thirds of the land falls under their ownership, a sharp contrast to the situation in 1982 when less than one-third was owned by this age group. The aging rural population and the fact that 70-75% of farmers are now 55 years or older indicate the impending wave of land transfer.
ISU also noted that to this shift is the decrease in the percentage of Iowa farmland that is held to support the owners’ current income, meaning relatively less land is now owned to generate income that will run a farming household. This can stem from the increasing contribution of off-farm income for most family farms or the later-stage farmers having more established streams in preparation of retirement, changing their primary motivation for farming. Therefore, the percentage of land that is used to support the current income of farmers has dropped from 56% in 2012 to 38% in 2022. As fewer landowners keep farms to support their incomes, the motivation for land ownership has shifted toward other considerations.
A significant share of the total land, 37%, is now owned for family or sentimental reasons, and another 23% is owned as a long-term investment.
But for those who want to keep the family farm going as part of their legacy, Kristiana Coutu, director of the Beginning Farmer Center and counsel for the Center for Agricultural Law and Taxation at ISU, says farm succession and estate planning can be complex and sometimes challenging to navigate.
From distribution of property, tax implications, the probate of a will, division of assets and debts, understanding property tax assessments, agricultural liens and Iowa farm lease laws, farm transition and succession has multiple components.
The Beginning Farmer Center offers multiple resources through its website at beginningfarmer.iastate.edu.
