Penn State Cooperative Extension
Capitol Region Dairy Team
TRANSFERRING YOUR
FARM ASSETS
Roland P. Freund
Regional Farm
Management Agent
Editor’s Note: This is the sec
ond in the series on farm busi
ness transfer. In the previous ar
ticle the author posed the
question: “Will your family farm
continue?” and discussed the
factors which might make that
possible.
Building equity in the hands of
the next farming generation is
the most important thing that a
family can do to ensure that the
family farm will continue.
The farm is a very complex
business. Transferring it is nor
mally not just a matter of signing
over a bunch of stock in “Farm
Incorporated.” In most cases we
need to divide the farm into its
component parts. Each of these
parts can be transferred separate
ly. A different timeframe and a
different strategy can be consid
ered for each part. The farm can
be divided into some basic cat
egories;
• The business operation. This
is the heart and soul of the busi
ness. It is the annual production
of crops and livestock and milk.
It includes'everything thdt we list
under annual income and ex
penses on the Schedule F of our
tax return. Inventories of inputs
and product, and the accounts re
ceivable and payable, are in
cluded. Only assets and liabilities
in the “Current” section of the
Balance Sheet are included.
It is possible to transfer the op
eration from one person to anoth
er party just by opening up a
checking account and a new ac
count book in the new party’s
name. All the assets listed below
can be leased or hired. Feed and
input inventories can be pur
chased as needed by the new op
eration from the old owner.
The next generation should get
some ownership, management re
sponsibility, and authority in the
operation soon after they are
committed to the farm or at least
by age 30. This gives them expe
rience in control of the produc
tion and finances of the business.
How this can be organized and
accomplished will be discussed in
our next news article.
• Breeding livestock and ma
chinery. These are the assets
where the junior generation can
easily build substantial equity.
Dairy cows in a herd are turned
over every 3 or 4 years. Farm ma
chinery on average is replaced
about every 10 years. Old cows
and machinery can be leased by
the new operation.
The business agreement can
specify that from the start of the
new business all heifers (calves?)
born will belong to the new oper
Roland P. Freund
ation. From a specified date, all
machinery will be purchased by
the new operation. Then, after
four years, most cattle, and after
10 years most machinery will be
owned by the new business.
• Buildings and structures.
These are depreciable assets. If
there is any remaining useful life,
they can be leased from the own
ers by the new operation. The
land and these structures are
often owned by grandparents
while grandkids are running the
operation. There is nothing
wrong with that.
But it is important that any
new facilities, built and paid for
by the new operation, be owned
by the new business. The struc
tures should not add to grand
parents’ estate just because they
stand on their land. This will re
quire some negotiations with
lenders and special legal agree
ments to make this possible.
That’s better than to make junior
buy his own facility from a family
estate.
• Farm residence and land.
These should be the last things on
the ownership priority list of the
younger farm generation. They
can generally be leased for a frac
tion of the mortgage payment to
purchase them. Iney are good
things for the grannies to hold
onto for security and retirement
income. Until Federal Estate
Taxes are eliminated, they get a
stepped-up basis in granny’s es
tate.
When they are in a sound fin
ancial position, having built suffi
cient equity, the junior generation
should purchase the neighboring
farm if that fits the plan for the
future of the business. This will
keep it totally out of the parents’
estates.
• Farm transfer vehicles. In
the final installment of this series,
we will discuss business struc
tures which can facilitate the
transfer process. We will also talk
about the implications of sales
and gifts.
Nittany Lion Fall Classic
Today In Ag Arena
STATE COLLEGE (Centre Co.) Today is the 18th annual Nittany Lion Fall
Classic, beginning at 11 a.m. here at the Ag Arena. The Holstein consignment sale
is one of the mayor events of the Dairy Science Club at Penn State. Seventy>four
top Holstein consignments are being offered by many of the region’s top breeders.
The consignments were chosen by the Penn State students assembled here, who
served on the selection committee. In photo are Sale Chair Joshua Hushon, with
calf, and Assistant Chair Jeremiah Fearnley, at left. Also pictured, front row, from
left, are Marie Cudoc, Lori Connelly, Nicki Over, Emily Cloninger, Doreen Delp, and
Dave Miklic. Back row, Mandy Jewart, Cassie Miller, Jess Worobey, and John
Couch.
Penn State Dairy Alliance
Introduces Management Training
UNIVERSITY PARK (Centre
Co.) Penn State Dairy Alliance
has developed a program to pro
vide hands-on training in data
collection and interpretation for
chief financial officers (CFOs) of
dairy farm businesses.
The BusinesSense program of
fers a unique combination of for
mal instruction, group discussion,
and hands-on computer analysis
in a small group setting, provid
ing participants with the oppor
tunity to learn from each other as
well as the instructors.
According to Brad Hilty, in
formation management specialist
with Penn State’s Dairy Alliance
Program, “Monitoring business
performance is critical to main
taining a competitive position in
today’s dairy environment.” Key
decision-makers of the business
must know what data is impor
tant and how to interpret it. Hilty
said, “The chief financial officer
PDMP Welcomes Progressive
Producers To Membership Meeting
MARTINSBURG (Blair Co.)
Want to meet and interact
with other progressive dairy
managers? Are you interested in
the latest technology and issues?
The Professional Dairy Man
agers of Pennsylvania (PDMP)
and the Randy and Karen Hunts
man family of Pennsylvania Fair
Valley Farm in Martinsburg en
courage progressive dairy man
agers to attend PDMP’s Member
ship Meeting Nov. 15.
The day will start at 9 a.m.
with a tour of the farm, followed
by lunch at the Martinsburg
Lancaster Farming, Saturday, November 10,2001-A27
of the business, which in many
cases is the dairy producer and
farm owner or their spouse, must
know how to collect, organize,
process, and report data in a for
mat that is more easily inter
preted.”
Instructors are Brad Hilty, in
formation specialist for Dairy Al
liance and Jeff Hyde, assistant
professor of agricultural econom
ics and farm business manage
ment specialist with Penn State’s
Department of Agricultural Eco
nomics and Rural Sociology. The
program is being offered around
the state. Each session begins at
9:30 a.m. and ends at 3 p.m.
Lancaster County Series is
being offered cooperation with
the Lancaster County Coopera
tive Extension Service and will be
at the Lancaster County Farm
and Home Center on Nov. 14,
Dec. 14, and Jan. 22.
North Central (Bradford,
Tioga, and Potter counties) dates
Community Center. In the after
noon, Kurt Rupple of Cargill will
talk about Feed Handling. PDMP
will also have a discussion about
“Growing Pennsylvania Dairy.”
Sponsors will provide lunch.
The objective of PDMP is to
foster a favorable dairy business
climate in Pennsylvania for pro
gressive producers. Members are
dedicated to promoting the well
being of their businesses, families,
and communities. Through tours,
discussion groups and workshops
that address current needs,
PDMP is providing opportunities
are Dec. 19, Jan. 24, and Feb. 7.
The location will be announced
at a later date.
Northwest (Erie, Warren,
Crawford, Venango, Forest, Mer
cer, Mercer, and Clarion coun
ties) dates are Dec. 6, Jan. 7, and
Jan. 8 at the Link To Learn
Computer Training Center in the
Crawford County Industrial
Park in Meadville.
Program cost is $l5O for all
three meetings. Additional indi
viduals from the business can at
tend for an additional fee of $65
each. Checks should be made
payable to “Penn State Universi
ty.”
For more information, contact
Tammy A. Perkins, Program
Manager, Dairy Alliance, 324
Henning Building University
Park, PA 16802, (888) 373-7232
or (814) 865-4682, fax (814)
865-4686, or e-mail
taplO@psu.edu. Website is
www.dairyalliance.org.
for members to work collectively,
support each other and share
ideas.
If you would like learn more
about PDMP membership, call
(888) 373-7232 by Nov. 12 to
make your reservation for this
opportunity to socialize and learn
with producers.
Advance registration is re
quired, but this meeting is open
to prospective members. You
may also view PDMP’s Website
at http://www.das.psu.edu/user/
pdmp/ for a complete agenda and
directions to the farm.