Dr Kohl: Grandma and Grandpa Goofed
9/24/2018
Dr. Dave Kohl
grain falling into a container

Dave Kohl

Farm and ranch transition planning is becoming more complex as businesses become larger and involve more family members. This is a timely issue as the older veteran and baby boomer generations enter the later chapters of life. A shift in ownership and responsibility does not come without some perils.

A recent case hit the younger generation like a heavyweight boxer’s punch! The farm was owned by the grandparents and was to be willed to their two daughters. The older daughter lived in another state and occasionally visited Grandma, who was in ill health. The younger daughter had a son and a daughter-in-law who took over the reins of the business for approximately seven years after the death of Grandpa. The young couple on the farm had improved land management and livestock practices, all while holding off-farm employment. Their neighbors commented that the farm had never looked better!

Grandma passed away and the will was read at her death, revealing her wishes. Shockingly, the older daughter who lived in another state was willed the farm, the house and half of the machinery and livestock assets. The younger daughter received half of the machinery and livestock assets and 100 acres of timberland that had recently been harvested. This daughter, her son and daughter-in-law also received no compensation for taking care of Grandma.

Keeping with tradition, Grandma had bequeathed most of her high-valued assets to her oldest daughter. She wanted to treat both of her children equally in inheriting land assets, acreage, equipment and livestock. She also wished that the farm would remain a productive entity. The out-of-state daughter agreed to keep the property as a farm.

The motivation of the grandchildren, who had been operating the farm for seven years, quickly diminished. The oldest daughter had no idea of the time and cost required to operate a modern-day farm. She wanted to split costs, income and operational decision making equally with the young couple.

As a result, one could soon see that the farm management suffered. Given the location, this operation could quickly become a housing development. Another consequence is that a good, young farmer couple with lots of potential is now on the street. The couple had put a lot of sweat equity and work into the property, but without an incentive they quickly became disheartened.

While this is only one case, I have observed similar circumstances across North America in recent years. Some vision and foresight by the grandparents could have set the farm up to continue to the next generation and subsequent generations. This young couple had children who were actively involved in the business and likely would have continued in their parents’ footsteps.

Failure to plan or communicate business transition plans will create consequences equal to or greater than the financial impact of potential estate taxes, not to mention the emotional turmoil among family members.

Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.



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