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Determining What is Fair vs. What is Equal on the Family Farm

A family farm typically involves family members who are fully invested in the continuation of the agricultural lifestyle as well as those who are not interested in living or working on the operation. Rarely do all members of the family have the same goals. If they do there is the equally hard decision of how to distribute the property and business.

A successful transition plan needs to include decisions that preserve the harmony of the family while protecting the viability of the farm. It is important to make informed decisions rather than simply splitting everything “evenly.”

Fair vs. Equal

Parents often have a strong desire to be fair. What this looks like is not always an equal distribution. It is important to remember equal is not fair, and it is not good business. Rather than dividing equally, instead, divide equitably. Rightly dividing assets can provide a strong framework for your succession planning.

There are a few things to consider when looking at ways to successfully split the inheritance.

  • Look at the involvement of each individual in the operation. Review their tenure, their performance, their skills and abilities and their level of responsibility. Recognize and reward excellent work, instead of letting feelings sway your decisions.
  • Consider using assets that are not linked to the operation of the farm. For example, taking out a life insurance policy to provide a cash inheritance to the non-participating family members. This can be tricky to navigate though and is not useful in all cases.
  • Remember the amount of “sweat equity a participating family member has already invested in the family farm when determining the equitable choice.
  • Non-participating family members are often more interested in assets and cash inheritance, while those who are invested in keeping the operation running will want the farm to stay viable.

Navigating these difficult waters requires the help of professionals. Contact us, we are here to help!

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