Extension Paper: Transferring Business Ownership of Farm Assets

The Iowa State University Extension Service recently published a short overview paper titled, “Transferring Business Ownership.”

The Extension item indicated that, “Once the younger party has made a long-term commitment to farming, the parties should consider how to transfer control and ownership of farm assets. In many two-generation farming arrangements, the younger party begins by working for a fixed wage. Eventually, however, the younger party will want to become an operator, not just an employee. Achieving this requires that control and ownership of part or all of the farm assets are transferred to the younger party.”

The Iowa State University article went on to outline general principles for consideration with respect to transferring assets such as: machinery, breeding stock, ownership in grain and market livestock, and land.

The article also touched on strategic objectives and the different potential methods that could be implemented to transfer assets and noted that, “So a business transfer strategy must be developed before choosing a method for transferring ownership.

“The planning horizon for transferring farm business assets from the older party to the younger party is an important consideration when developing an ownership transfer strategy. It usually corresponds to the length of time the parties intend to farm together. Fast strategies transfer the business from the older party to the younger party quickly or at one point in time. Gradual strategies transfer the business over a period of years and are used when the two parties plan to farm together for an extended period of time.”

More specifically, the Iowa State article indicated that, “With a gradual business transfer strategy, the two parties farm together for a period of years. The younger party may join the business and form a multi-person arrangement or the younger person may spin off and develop a separate business but still jointly own machinery and/or livestock with the older party. The transfer of machinery and breeding and market livestock occurs gradually over this period of time. Methods for accomplishing this include a gradual sale, lease with option to buy, gradual sale with lease, gradual sale with gift, and others.”

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