Planning how to pass on the farm to the next generation can be one of the most challenging tasks for a farm family. Parents often want to recognize the hard work and commitment of a farming heir while still treating non-farming heirs fairly. The difficulty is that most of a family’s wealth is usually tied up in farmland and operating assets. If all the farmland is left to the farming heir, non-farming heirs may feel shortchanged. But if farmland is split among heirs, the farming operation can lose access to land needed to sustain the business. Non-farming heirs may wish to inherit land for sentimental or financial reasons, yet their ownership could lead to conflicts over leases, sales, or use of the property that disrupt the farm’s future.
These decisions can become emotional as well as financial. A farming heir often contributes years of labor with the understanding they will one day operate the farm. Non-farming heirs may feel entitled to an equitable share of the family wealth, even if it means dividing farm assets. Options like requiring a buyout by the farming heir can create additional financial stress and may not be realistic given high land prices. Many families struggle to balance fairness to all heirs with the need to preserve the land base for a viable farming operation.
A new bulletin, Using Long-Term Leases in Farm Transition Planning, explores one way to resolve this challenge. A long-term lease allows parents to leave farmland ownership to a non-farming heir while granting the farming heir a secure, extended right to farm that land. This strategy protects the farmland base for the farming heir, provides rental income to the non-farming heir, and helps the farming heir avoid the high cost of purchasing additional farmland. The publication explains how long term leases work, the advantages and disadvantages of this approach, and considerations for setting lease terms that work for both parties. It includes practical examples of how families can use this strategy in their transition plans, as well as the importance of adjusting rent over time and consulting legal counsel before finalizing an agreement.
The bulletin is part of the Planning for the Future of Your Farm series and is now available on the Farm Office website.