I recently attended a workshop for Iowa Ag lawyers and the Drake Law center as we consider the massive change in land holding that is coming for the state in the years ahead. Between a large chunk of the acres being held by those over 65, advances in technology making less farmers required to operate the farmland(206,000 in 1950 compared to 88,647 currently in Iowa), and the intertwining emotional, family issues with business issues the task is monumental.
A couple of great thoughts came out of that workshop and I hope it is followed up with some solid training and guidance for our state’s advisers and decision makers. What was disappointing is that the large majority of farm operators have talked to NO ONE about their decision to retire (that is to withdraw all management and capital and labor) from an operation and of those that did talk to some one, only 19% mentioned it to an attorney prior to taking actions.
Here are some of the thoughts that are all worthy of consideration as you contemplate how to move the farm forward or distribute assets to the next generation or both.
- · Farm business transition needs to be separate from estate transition.
- · We don’ t ask factories to buy out all the invested capitals in the buildings, machinery and inventory once every thirty years, yet this happens in some farm operations every generation.
- · Every operation has three pieces, capitals, management and labor and the lowest rung and easiest replaced is labor, yet sometimes the labor contributed protects the capital from lack luster management decisions of the elder generation.
- · Letting a child stay on the farm is either a disservice to them because it never exposes them to risk like those seeking employment in the work force or it exposes them to the ultimate risk of work with no clear plan on compensation, retirement or control in many cases.
- · Blood is thicker than water but money is thicker than blood.
- · Your risk tolerance is sometimes measured if you are closer to senior living than senior prom.
- · Family decisions are risk adverse, inward looking and intuitive. You don’ t make a conscious decision to love your children, you simply do, for example. By comparison, businesses who expand seek risk, look outward and make conscious decisions. The conflict between the kitchen table and the board room table is a natural one.
- · Having a succession plan allows the operation to succeed and grow whereas not having a plan ensures a lack of growth as uncertainty.
- · Non farm heirs frequently want to share in the success of the farm operation, but rarely want to contribute additional capital in the years when success is measured by how little money the operation looses.
- · Challenges to a farm estate plan come more frequently when a family is already broken for another reason or someone is surprised by the plan. In the absence information, people tend to think the worst.
- Ambiguous, non SMART goals the breeding ground of conflict. A SMART goal is SPECIFIC, MEASUREABLE, ATTAINABLE,REALISTIC and Timely .
I Don’t want to go and you can’t make me.
Can a farm tenant, who is terminated on the lease, sue for damages against the land owner for not being able to make corn stalk bales before fall tillage starts for the operator?
Under Iowa Law, as of 1 July 2010 ,unless the parties agree otherwise, the tenant has the right to the property until the lease expires.. In a recently decided case, the terminated tenant sued successfully for trespass damages where he had established that prior to the trespass of fall tillage, he was going to make corn stalk bales, even though the lease was enacted before the law change. Because the lease renewed automatically on 1 September 2010, after the law change in 2010, the change in the law was applied to the contract.
The kicker on this is that the tenant only had the lease with the change in the law because he hadn’t been properly terminated on 1 September 2010.The take away from this case is clear, following ag law and its rules is not a task to be tended to right before catching the opening monologue of Jimmy Fallon. The rules are complex, the courts will treat your operation like a business.