Keeping the family on the farm

Published 12:00 am Sunday, February 8, 2015

Farmers and ranchers in Central Oregon wait too long, in some cases, to hand off their operations to the next generation, giving rise to family friction and lost opportunity, say farm and legal experts.

The result: an aging population of farmers and ranchers, a frustrated next generation waiting to take over and fewer, but larger, farms and ranches as third parties consolidate former family operations. Proponents of family-run farms and ranches say they maintain the social fabric of rural communities, preserve capital assets and offer the best chance for young farmers and ranchers to enter the profession.

“This is one of those issues that doesn’t get a lot of public conversation because it is a private thing,” said Tim Deboodt, Oregon State University Extension Service agent in Crook County. “But, out in the woods, so to speak, it is a conversation.”

The reasons why aging farmers and ranchers hang onto their operations are many, said Bart Eleveld, an OSU Extension Service economist. Eleveld is holding a two-part workshop on farm succession Feb. 11 and March 10 at Central Oregon Community College, in Redmond. Five farm families have already signed up, he said, and he’ll sign up others interested in attending.

Eleveld said workshops aim to get family members talking about transferring the family operation to the next generation and preparing to meet with professionals in law and accounting to prepare the way.

Most farmers simply do not plan to retire, whether because of control issues, financial need or reluctance to give up a certain lifestyle. Plus, the complex aspects of transferring an operation — questions involving tax law, financial planning for retirement and actual management of the farm or ranch — are off-putting. Like business owners of any stripe, those in agriculture are sometimes reluctant to face their own mortality, and procrastinate on succession planning until too late.

“That transfer is complicated, in my mind, because of the enormous value of the capital asset, and trying to make that transition without putting a financial burden on the heirs of the estate,” Deboodt said. “A mix of state and federal laws control that process and, maybe, put the farm at risk because of the bill that comes due.”

Aging farmers

Oregon’s population of farmers is getting old. The average age of a farmer in 2007 was 57.5 years, according to the U.S. Census of Agriculture. That figure rose by 2012 to 59.6.

Crook County farmers, on average, are the oldest in Central Oregon, at 59.8 years in 2012. The census reported 112 farmers in Crook County age 70 or over in 2012, the second largest age group after 60 to 64. Five years earlier, 99 farmers in Crook County were age 70 or older.

Late-retiring farmers are not unique to Oregon. A 2009 study by researchers at Iowa State University found only 20 percent of Iowa farmers indicated they plan to retire. By contrast, more than 50 percent of business owners in other sectors say they plan to retire, according to the study, “Iowa Farmers Business and Transfer Plans.”

“A majority of farmers said they would semi-retire, meaning they would still provide some managerial control or labor to the farm,” according to the report.

In Oregon, succession trouble may partly account for a declining number of farms overall as younger men and women are discouraged from entering the field and family farms are consolidated by other operators, Eleveld said. In Crook County, for example, the total number of farms dipped from 622 in 2007 to 551 five years later, according to the Census of Agriculture. Deschutes and Jefferson counties saw similar declines.

Money, pride, choice

Transferring the family farm from one generation to the next is one way to ensure the business survives, according to the Iowa study. Failure to plan that transfer sometimes means friction among next-generation siblings jockeying for control of the property. It may also present to a middle-aged son or daughter a difficult choice between an established career and taking over the family farm or ranch in a pinch, Eleveld said.

Money and pride often factor into the choice by farmers and ranchers to work past their prime, he said.

“We find that, a lot of times, farmers and ranchers really haven’t made provisions for a retirement income,” Eleveld said. “Unless they’ve made other investments that they can convert to an annual income, they simply need the income from the farm to support their family living expenses.”

In that case, a farmer or rancher looking to exit the day-to-day operation may lease the land to another operator, who later may buy the property, he said. A lease provides a steady income stream, but, in some cases, further delays a decision on who ultimately inherits the property.

“Renting it to a neighbor is not the same thing as having a son or daughter take over the operation,” Eleveld said.

Many longtime farmers and ranchers are reluctant to hand the plow, or the saddle, to the next generation. Consciously or not, they resist losing control of the operation. Consequently, when that transfer does occur, it’s often abrupt and unplanned. A sudden illness, accident or death becomes the occasion for the next generation to take the reins, Deboodt said.

“In agriculture, it’s as much a lifestyle as it is a business,” he said. “You rarely see someone retire as a farmer. They just farm their entire life.”

However, an accident or abrupt change in the owner’s health, for example, may spark a conversation about letting the next generation take over, Deboodt said. He said he’s helped more than 20 families over 30 years find the experts they need in law, finance and social sciences to sort out the family business transition. Workshops like the one Feb. 11 in Redmond also spur family members to start talking about the future, he and Eleveld said.

“There have been, over the years, (cases) where the upfront planning wasn’t done,” Deboodt said, “and the consequences after the fact were such that it created lots of heartache among the family, and the farm was divvied up and didn’t stay in the family.”

Attorneys and accountants

Farmers and ranchers sometimes guard the financial and operational details of their operations or keep those details solely in their heads. Procrastination in estate and financial planning may send a ranch or farm property into the probate process, and result in sale of those assets to satisfy taxes or other debt. Either way, the farm, or valuable information about it, may be lost to the estate heirs.

Attorney Frederick Schroeder, of the Stahancyk Kent & Hook law firm, specializes in estate planning in Central Oregon. He recalled finding — after his father, a small-business man, had died — a to-do list on a legal pad on his father’s desk.

On it, his father had written, several times: “Re-do will,” Schroeder said. “He never did.”

That experience informs his work with farmers and ranchers around Central Oregon, he said. An operation worth more than $1 million is liable for Oregon estate taxes, and over $5 million for federal estate taxes, he said. No property transfer can avoid all taxes, he said, but planning can reduce the burden.

“Generally speaking,” Schroeder said, “you have a conversation with a client: If you give up control … I can minimize your taxes. If you want to pass it on to the family, there’s control and loss of control. There’s a decision point.”

A clearly defined plan also sidesteps questions that may arise when the patriarch or matriarch is gone or suffering diminished mental capacity. In the event of family squabbles, a court or other third party has something that indicates the owner’s intent, he said.

“People don’t want to address their mortality; it’s not just for farmers or ranchers,” Schroeder said. “If someone has a goal, (such as) how do we get to a century farm, it’s through proper planning.”

Handing off a farm or ranch is as much an emotional as a financial decision, Eleveld said. Loss of financial control, no longer being active in the day-to-day operation, these things are hard sometimes to accept. They’re also a source of frustration for a younger generation awaiting its turn at the helm, he said.

“That’s a core part of our workshop,” he said, “getting families to express who does what in terms of management decisions, and where in time do they want those decisions transferred to the next generation.”

Part of the workshop focuses on how to “structure dialogue between generations,” simply put, how to start talking about who controls the operation and for how long. Eleveld said conflict does arise within families, but the workshop offers guidelines on addressing that conflict in a family setting. The workshop is funded in part by a $40,000 grant from the U.S. Department of Agriculture. The Austin Family Business Program at OSU collaborates in the workshops, Eleveld said.

“We encourage and actually give an assignment to talk about these issues between our two seminars,” he said. “They’re supposed to talk about this transition of management functions.”

In previous workshops on estate and financial planning, Eleveld said, he found as many members of the older generation pulling the younger generation into the business as younger members pushing their seniors out. The impetus often came from one generation or the other, and one generation would show up at workshops without the other.

“We are requiring both generations to participate,” he said. “We didn’t think that was a very satisfactory way to work with these families.”

— Reporter: 541-617-7815, jditzler@bendbulletin.com