‘School bus’ no place to learn farm management | Farm Transition
It was exciting to put our kindergarten son on the school bus for the first time.
As young parents, other than the tears that my wife shed and the uncertainty of our life changing, we gave no thought to the things that our son would learn on the school bus from his older peers. We assumed that the learning was going to take place at school. Little did we know the life lessons he would learn on the bus. Last night I asked all three of our now adult children what they learned on the bus. Most of their answers were not appropriate to print.
Like most situations hindsight tells us to change, by the time we found out about the “school bus education,” it was too late. Due to ignorance, we had missed an opportunity to control the situation. Instead of process management, we had to switch to crisis management.
As time went on, we realized that we needed to curb our children’s school bus education. We felt it was much better for us to educate our children on various life lessons (including the birds and the bees, drugs and alcohol and the childhood mysteries of Easter, Christmas and the loss of a tooth), or they will self-educate.
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That was 18 years ago and it seems like a lifetime. By the time our younger children got on the bus as kindergartners, we were better prepared.
In a way, farm transition planning works the same way. Your goal should be to educate your heirs how to manage farmland the way you would want them to. Do not let your heirs self-educate about inherited farmland on “the school bus.”
Too often, the next generation of landowner has no idea what they have inherited. The biggest questions they have are what is it worth, how much tax will we pay if we sell it, and how fast can we turn it into spendable cash?
As the old saying goes, “once it’s gone, it’s gone.”
In agriculture, now more than ever, we need to address these issues purposefully. There is such a small margin for error in farmland transition that each decision should be consciously and purposefully studied.
If there are potential weak spots in your farm transition plan, the odds of your land staying in the family diminishes.
If we do not educate the next generation on land ownership and land management, the turnover in our communities (land and labor) may prove to be devastating for our industry.
Most of us were trained how to operate equipment at a young age. We either liked it or hated it, but we had an opportunity to find out hands on. If we sat in a tractor seat for the first time at age 50, the probability of being a farmer is slim.
Owning land is the same way. Those who already own land have a higher probability of keeping additional inherited land. Those who are uneducated about the land have a higher probability of turning it to cash as soon as the estate is closed.
You should consider a process to discuss the following matters with your children and grandchildren in an effort to provide them with opportunity to have “skin in the game” and experience the benefits of land ownership while you are living — to prepare them for the future when you are not.
In the old days, many leases were crop share arrangements. These leases were and still are the “fairest” combination for both the owner and the tenant. You cannot be any more “fair” than sharing costs, revenue and profits.
Over time, a lack of education and the desire for maximizing return without risk has made cash leases by far the most popular choice. Cash rents have gotten out of hand to the point that a young farmer has little to no chance to compete. That marketplace requires subsidization to pay inflated rates to the point that only a select few can exist.
Straight cash rent typically yields a winner and a loser depending on front-end negotiation and back-end production and marketing. This may not be conducive to the type of “win-win” relationship required for a long-term owner and tenant relationship.
The lease of the future is a combination of a crop share that allows for upside potential and a sharing of profits with a base cash rent that provides a level of certainty for the owner.
This is called a flex lease and should be considered as a comparison for current leases. There are many versions in the marketplace and the popularity is growing.
Soil and grid sampling tell us the level of fertility in the soil. We need to train our children that the long-term levels of fertility are more important than the short-term level of cash rent received each year.
Grid sampling gives us a starting point and a future measuring point to compare so the tenant can keep your land’s fertility where it was at the beginning of the lease arrangement. A good long-term tenant will raise the levels of fertility over time.
If the cost to the tenant to maintain fertility is $200 per acre and rent is $300 an acre, the equivalent rent cost to the tenant is $500 an acre. Unfortunately sometimes the marketplace forces the tenant into offering a bloated rent amount and they cannot or do not replace their levels of P and K fertility.
This concept inevitably causes hardship for the uneducated landowner and makes the higher-rent tenant potentially inferior to a more moderate rent where the tenant takes care of the land by maintaining or even increasing fertility levels.
The older kids on the bus would say, “It is the tenant’s job to take care of the land.” Maintenance includes tile repair, waterways, keeping trees out of fence lines, maintaining terraces and fertility. Both the owner and the tenant need to play a role in maintaining the land.
We need to educate the next generation of landowners about land management and upkeep the way we would do it ourselves and not rely on others to educate our future owners of the most important asset that we have.
The best time to plant a tree was 25 years ago. The next best time is now. It is never too late to have candid discussions about rent, fertility and maintenance of the land with your children.
Create a process to discuss the various options that the next generation will have before you pass it to them. Make sure everyone understands there is a difference between an estate plan with a short life span (the time it takes to settle your estate) and a farm transition plan that may go on indefinitely across family generations.
My sincere hope is that you will have the opportunity to teach your children about land ownership and management the way you would want them taught and not by those on “the bus” who could steer them in the wrong direction.
For 29 years, Steve Bohr has been a partner in the farm continuation firm of Farm Financial Strategies, Inc. For additional information on farm continuation issues or if you have a question please contact Steve via email at Bohr@FarmEstate.com or by phone at 1-800-375-4180.