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Treatment of heirs in the transfer process

Quick facts

  • One of the most difficult questions many retiring farm families face is how to get a young son or daughter started farming while being fair to the kids or other heirs who are not farming.
  • You can take several steps to help ensure a successful farm transfer while also providing for your non-farming heirs. 

Protecting the on-farm heirs

The farm business can be a fragile structure. The high risk nature of farming, coupled with huge start-up costs and generally narrow profit margins, dictates the need for safeguards to protect the farming heirs.

In today’s economy, it usually takes a great deal of parental help to get a young person started farming. This help is usually provided through reduced charges for housing, lower machinery and land rents, lower interest rates, gifting of assets, financial supplements and various other types of help. Unless the young person starts out with a nest egg, parental concessions are needed if the young farmer is to get started successfully.

Farming heirs can protect themselves by carrying life insurance on the parents, by carrying risk insurance on their assets and by seeking continued education to upgrade farm management skills. However, the parents also have to play a key role in protecting the financial vulnerability of the farming heirs.

It is not enough to say "You'll be taken care of when we are gone." You need to take legal written action to make the transfer happen. Farming heirs who are insecure as to their future in the business are unhappy, often indifferent and easily alienated from farming.

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Caution: This publication is offered as educational information. It does not offer legal advice. If you have questions on this information, contact an attorney.

Gary Hachfeld, former Extension educator; David Bau, Extension educator and C. Robert Holcomb, Extension educator

"Putting a value on sweat equity" section is by David Goeller, former transition specialist, University of Nebraska-Lincoln

Reviewed in 2017

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