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A Model of Farm Transition Planning for the U.S. Plains

Author

Listed:
  • Reed, Garret
  • Ferrell, Shannon
  • DeVuyst, Eric A.
  • Jones, Rodney

Abstract

Farm transition planning continues to be a significant challenge for U.S. agricultural owner/producers. Past and ongoing research points to an aging farm population with little or no planning to transition farms to succeeding farming family members, despite documented goals of continued family ownership and operation. This study developed and analyzed alternative farm asset transition strategies using a representative farm for Oklahoma. The simulations considered equity issues, family living requirements, and cash flow pre-and post-transition. Strategies analyzed considered off-farm investments and life insurance tools to even bequests between an on-farm and an off-farm heir, and also modeled splitting inheritance into an operating entity that owns machinery and other operating assets and a landholding entity that leases real estate to the on-farm heir. The simulations assumed a 20-year transition period. Results indicate that early planning is essential for success. In addition, the use of life insurance tools and/or the implementation of equitable, but unequal treatment of heirs improve the likelihood of successful farm transition between generations.

Suggested Citation

  • Reed, Garret & Ferrell, Shannon & DeVuyst, Eric A. & Jones, Rodney, 2021. "A Model of Farm Transition Planning for the U.S. Plains," Journal of Applied Farm Economics, Purdue University, vol. 4(1), January.
    • Handle: RePEc:ags:pujafe:346797
    DOI: 10.22004/ag.econ.346797
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    References listed on IDEAS

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    1. Ashok Mishra & Hisham El-Osta, 2008. "Effect of agricultural policy on succession decisions of farm households," Review of Economics of the Household, Springer, vol. 6(3), pages 285-307, September.
    2. Kirkpatrick, Joy, 2013. "Retired Farmer - An Elusive Concept," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 28(2), pages 1-5.
    3. Michael D. Boehlje & Ludwig M. Eisgruber, 1972. "Strategies for the Creation and Transfer of the Farm Estate," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(3), pages 461-472.
    4. Mishra, Ashok K. & El-Osta, Hisham S. & Shaik, Saleem, 2010. "Succession Decisions in U.S. Family Farm Businesses," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(1), pages 1-20.
    5. Loren W. Tauer, 1985. "Use of Life Insurance to Fund the Farm Purchase from Heirs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 60-69.
    6. Ferrell, Shannon L. & Boehlje, Michael & Jones, Rodney, 2013. "The Policy and Legal Environment for Farm Transitions," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 28(2), pages 1-5.
    Full references (including those not matched with items on IDEAS)

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