Farm Succession in Stages: Management, Ownership, and Real Estate

Thinking about how an older or owner generation may begin to retire or leave the business can feel like an identity is also being stripped away.

It is important to remember that each farm succession plan is different and unique. Transferring a farm to another owner does not have to mean that the owner generation must walk away from the business. There are a variety of stages within the farm succession process, and there are plenty of ways for an owner generation to stay involved with a farm business throughout and even after the process.

The stages of farm succession include the transfer of management, ownership, and assets. Sometimes, when discussions arise about farm succession, thoughts immediately race to the transfer of land to a new owner. However, that is actually one of the last steps to consider in the process if communication begins early – before emergent or immediate changes need to occur.

In an ideal scenario, the new or entering farmer has the opportunity to learn from and grow with the owner generation. They learn not just about the day-to-day activities, like which cows may be rowdy, and which chickens don't like to return to the coop without coaxing, but they also learn about how to run the business, like when to order feed, when the bills arrive and need to be paid, how to budget for taxes or large capital improvements like a new barn roof or fencing.

When the entering generation has successfully inherited management responsibilities of the farm business, the next step is to consider the transfer of the business. The business includes the assets listed on the business's balance sheet, excluding buildings and land. The assets could include market or breeding livestock, stored crops, crops already being grown, tools, machinery, equipment, and possibly titled vehicles like a farm truck or trailer that may be needed for the operation. In an ideal world, at the time of ownership transfer, all of the liabilities (debts) will be paid off, so the entering generation is just purchasing the assets and not inheriting debts. However, if there is lingering debt, the owner generation could use sale proceeds to pay off debts.

The final stage of the farm succession process is the transfer of long-term assets, including the land, buildings, and potentially the farm home. This is the time for the two generations to consider what the value of the assets are, what the entering generation can afford, and what the retiring generation needs to be able to live, retire, and afford healthcare well into the future. There may be an agreement in place where the owner's generation stays in the farmhouse until passing. There may be a direct sale where the owner generation completes the sale and moves off the property but is still involved in the day-to-day activities of the farm, such as calf care, feeding, or fieldwork. There may also be an agreement where assets are transferred, and the retiring generation takes the proceeds and moves away from the farm. All of these options are realistic and possible realities.

With early and ample communication, farm transfers can be a smooth and thoughtful process. There are tools available to help you and your family navigate the farm transition process. In addition, there are service providers who are trained farm succession coordinators with the International Farm Transition Network who can help your family navigate tough conversations but also help you think through scenarios for the best outcomes for all.

If you’re interested in connecting with a Penn State Extension Educator for coordination services, email our team.