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Farm Transfers of the Non-Family Variety

Learn about successful non-kin farm transfers and the best practices for transitioning farm ownership to unrelated successors. Explore alternative models for farmland acquisition and fostering collaboration between experienced and beginning farmers.

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Farm Transfers of the Non-Family Variety

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  1. Farm Transfers of the Non-Family Variety Kansas Rural Center West Blue Farm - Nebraska Gelder Farm - Illinois Indiana University

  2. Overview Transitioning a farm to an unrelated successor can create a golden opportunity for both an aspiring farmer and a farmer who wants to retire and ensure the land stays in farming. Hear from two farms that are successfully navigating non-kin farm transfers. • Introduction - Mary Fund, Kansas Rural Center and Julia Valliant, Indiana University • West Blue Farm • Eastern Nebraska • Dave Welsch and Eric Thalken • The SDIRA Alternative with Gradual Ownership Transition • Gelder Farm, Piatt County, Illinois • Mary Gelder and Wyatt Muse • Questions

  3. Transitioning Farms & Ranches from One Family to the Next NCR-SARE funded research project: A review of existing landlink programs providing one or more of these types of services: Listing Linking Matching Tax credit and/or Mentoring

  4. Partners and Advisors Plus farmer advisors from Indiana, Kansas and Nebraska Thanks to NCR SARE for support. And Thank you to MOSES for inviting to do this workshop!

  5. Radio and podcast outreach partners

  6. Purpose of Farm Transitions Study To assess best practices from the 20+ year experience of 42 landlink and linking programs to support farm transfers between non-related parties. To examine models for fostering collaboration between experienced and beginning farmers through mentoring programs, To explore alternative models for farmland acquisition & alternatives to land ownership To share success stories of non-family transfers - such as today!

  7. Common Thread How do farm and ranch seekers gain a farming opportunity and an ownership opportunity? How do farmers or ranchers with no farming successor build a relationship with a non-kin successor? Or, how does a non-operator landowner find a farmer?

  8. Research process Surveyed and interviewed the leaders of 29 active programs and inactive programs; Surveyed and interviewed farm owners and farm seekers in those programs

  9. Outcomes: Best practices for improving existing programs Best practices for starting a new program Collect stories of successful non-kin transfers

  10. What We Learned (so far) *Finding each other is the biggest challenge! -So linking programs (from simple online listings to full scale land link programs) offer opportunities. *Mentoring Programs are good for both seekers and farmers *Most linking programs feel successful and keep track of their medium-term successes, particularly among farm seekers (if not farm owners)

  11. What We have learned so far continued *Beginning farmer state tax credits attract a lot of participation and help beginners gain secure tenure (in IA, NE and now MN!) *People are experimenting with alternative land ownership or access models. *That all farm transitions are complicated-- but we learn from others’ stories

  12. How to learn more Land link Program Survey Summary Findings - ask Julia for the link Joint publication with Purdue University Extension Story Corps Interviews ongoing throughout MOSES with non-kin farm transition folks And the success stories! Broadcast this year and next over public radio, commercial farm radio, and podcasts Mary Fund Kansas Rural Center mfund@kansasruralcenter.org Julia Valliant Indiana University jdv@indiana.edu

  13. Nebraska Farm Dave & Deb Welsch

  14. Introducing Dave and Deb Welsch!

  15. Introducing Dave and Deb Welsch! • Grew up on a farm in Milford, NE • Started farming rented land in 1978 • Farmed with Dave’s Dad, Gene • Certified organic 1993 • Married in 1980 • Live in Dave’s grandparents house originally purchased in 1914

  16. First Attempt. . . In 2007 - 50 years old. Unwritten 10 year plan 5 years hired man Next 5 years transitioning ownership Transferred operational ownership in 2011 The Transition. . .

  17. Transferred too fast Didn’t truly know the person No transition plan in writing Should have included an exit plan Trust “things will work out” Errors in Transition. . .

  18. Introducing Joe and Shanae!

  19. Introducing Joe and Shanae! - Joe started at Welsch’s organic farm as a hired man in 2009 doing what he wanted to do. - Joe kept an open mind and learned as much as possible. From organic to conventional farming, hog confinement, feed mill and dairy farming. - Joe started small with 9 head of beef cows and expanded to raising replacement dairy heifers. Now milking about 60 cows at his own dairy. - Joe committed to making this his primary income and quit his "day job" so that he could put all his focus and time towards making it work.

  20. Introducing Eric and Allie!

  21. Introducing Eric and Allie! • Met Welsch’s at MOSES in 2012 • Worked with Dave’s 1st Tenant (and Dave and Deb!) • Both have AgEcon degrees from UNL • Varied farm experience - Goat Dairy/Cheesemaking; market garden; organic dairy; commercial row crop

  22. Land rented to a large farm under Eric’s Management 3 year lease agreement Hoping to sell some land with house, bins and buildings to Eric and Allie Current Transition Plan. . . Cropland

  23. Transition to Joe and Shanae in 2017 Full ownership transition in 2018 Receive Farm Name “West Blue Farm” 500 family customer list Website - Purchased all livestock equipment on 3 year contract Current Transition Plan. . . Direct Market

  24. Weaned and yearling feeder cattle sold to Joe Feeder cattle paid for when sold as fats - Joe is leasing 12 bred heifers on shares - Joe is leasing 170 acres of pasture - 32 bred cows are leased to two other young farmers Current Transition Plan. . . Livestock

  25. The SDIRA Alternative (Self Directed IRA) With Gradual Ownership Transition Mary Gelder and Wyatt Muse

  26. Wyatt’s Story • Wyatt was raised on a conventional corn and soybean farm near Champaign, Illinois. • Has worked in the Grain industry for 15 years, with the past 10 being focused on Organic and specialty grains. • First farm purchase made possible through partnering with Mary and transitioning to Certified Organic production.

  27. Mary’s Story: The Local Organic Food Dilemma Easy to find: • Local • Organic Hard to find: • Local Organic

  28. Mary’s Story: The “Relationship Bombshell” $6-7000 per year in fees to manage IRA investments in ethical funds! “How badly do I want to NOT invest in Monsanto?”

  29. What’s an SDIRA? DEFINITION of 'Self-Directed IRA - SDIRA' A self-directed individual retirement account (SDIRA) is an individual retirement account (IRA) in which the investor is in charge of making all the investment decisions. The self-directed IRA provides the investor with greater opportunity for asset diversification outside of the traditional stocks, bonds and mutual funds. Self-directed IRAs can invest in real estate, private market securities and more. All securities and investments are held in an account administered by a custodian or trustee. Owner may not: Occupy property or use property for personal business. May not rent to lineal relative. May not purchase a property already owned by individual or disqualified person (lineal relative).

  30. How the SDIRA approach works with land • Retirement savings can be used to ease a farmer into land ownership before funds will be needed for retirement • The investor must be old enough to have accumulated a nest-egg large enough to purchase a farm • … but not so old that he/she will need to start using the savings anytime soon • Remember: 401(k) and traditional IRA funds have accumulated tax-free. That nest-egg partially belongs to the government! The investor can leverage those additional funds to do something otherwise not affordable (within strict IRS rules) • The investor rolls the 401(k) or IRA into the SDIRA; the funds are then used to buy farmland • The farmer cannot be a relative of the investor • The farmer gradually purchases interest in the land at a pace that works for both the farmer and investor • Lower rent approach for first three years may help ease the cash-flow challenge during organic transition

  31. Our 3-Way Agreement in a nutshell... • Lease Agreement • 5 Years • Base rent sufficient to cover real estate taxes • Variable rent based on farm revenue • Stipulates transition to organic (discount on variable rent during transition) • Transition Agreement • At end of lease agreement Wyatt purchases an undivided interest in the land • Schedule of transition of ownership over 25 years is already agreed • 75% of Wyatt’s variable rent payments apply to the purchase • Subsequent lease agreement is adjusted to reflect the new ownership interests • Mechanism is specified for establishing the purchase price every five years • Purchase Agreement • Already agreed - we only need to fill in the interest % and purchase price!

  32. Transition of Ownership Interest

  33. Closing Day! 7/7/2015

  34. Pros and Cons for the Farmer Pros: • Ability to build equity through land ownership requiring large down payment • Security through confidence in long term operation of land compared to leased acres. • Tax Advantages Cons: • Planning and implementation may not meet timelines of land sale. Plan on several months or more between decision to move forward and ability to close.

  35. Pros and Cons for the Investor Pros: • Protect savings until I need them • Bulk of funds “work” in land asset during first decade • Liquidity increases as I age • I have a committed, ready buyer • Funds invested in something I’m passionate about • Very low fees compared to standard investment funds Cons: • Must manage own “portfolio” (SD means DIY) • Must be knowledgeable about prohibited transactions • Not a cookie-cutter solution • Difficult to find experienced professional help • Not AS liquid as a 401(k) or traditional IRA • All eggs in one basket

  36. Lessons Learned • How to find each other? Talk about the idea! • Investor should focus on finding the right farmer • Let the farmer choose the land! • Involvement of legal and tax professionals in the SDIRA is a MUST • Prohibited transactions • Allow plenty of time (months) before shopping for the land • Learn about SDIRAs • Shop for custodian • 401(k) rollover takes time • Interview attorneys and tax professionals - hard to find • Lots of honest discussions between farmer and investor • Finalizing transition schedule/agreements • Attorneys can be very slow • Best to work out all details of all three agreements in writing from the start

  37. Almost Organic!!

  38. Want to know more? Reach out to us! Mary Gelder Dave Welsch Eric Thalken Wyatt Muse Cell #630-212-8008 mjgelder@comcast.net Cell #402-826-9691 dwelsch@westbluefarm.com Cell #217-619-3203 wyattmuse@gmail.com Cell #402-841-4177 eathalken@gmail.com

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