Aging Montana Ranchers and Farmers
Over the past 30 years, the average age of farmers and ranchers has increased nearly 8 years. Currently, the average farmer or rancher in the United States is 60 years old. The average age of Montana ranchers and farmers is over 60 years old. This presents a tremendous dilemma for most Montana ranchers or farmers. As it becomes harder to keep up with the necessary tasks, older farmers and ranchers face a set of complicated decisions that they must consider.
As these individuals continue to grow older in the next 10-15 years, their health and physical ability will become an issue at some point. The majority of accidents occur to those under the age of 15 and over 65. This being said, the average farmer and rancher must avoid hazardous situations. Injuries may lead to jeopardizing the income needed to maintain operations around their ranch. The problem is many of their activities have an inherent risk of injury that go along with the task.
These operation decisions need to be considered now to allow for the smoothest transition possible. The planning process needs to start as soon as possible in order to prepare yourself, your land, and your family for difficulties that accompany the difficulties of getting older. There needs to be a plan in place before there is an accident or you are physically unable to accomplish a task. In response to this dilemma, this article presents some possible options and assessments to consider to prepare yourself for the inevitable.
When faced with the challenges that old age presents to the future success of your farm or ranch, there are several options that you can employ to remain operational. One of these options is to incentivize a child to come home to help. They could already be at home helping with the operations of the ranch or they are away in another career field.
The key here is to motivate them to help. This can be of great benefit to both parent and child. They can be their own boss and control their destiny. At the same time, they may want to purchase the assets and equity of the ranch over time. Another way of reimbursing your children is to gift them portions of the ranch’s assets. This reduces the tax on the gifted portion and over time is a great way of transferring ownership from yourself to your children without tax consequences. Gifting can also test the waters of whether they will take ownership seriously. There needs to be consideration on whether the child has the abilities to run the farm or ranch or whether the decision is being forced by either side. Many times a child isn’t capable enough or a parent can’t let go of running the operation. Family businesses are tough. If things aren’t handled right with care many times there is more damage than good done. All parties should go in with open eyes and having everything put in writing. This is a business deal. Treat it as such.
Hire a Manager
Another option for Montana ranchers or farmers is to hire a manager. This can be accomplished in many ways. One way is to find a farm and ranch headhunter who specializes in finding qualified individuals who can run your operation. Another way to find qualified individuals is to post on farm and ranch manager job boards such as ranchwork.com. This process will be more time consuming since you will be interviewing and critiquing applicants directly instead of having a third party do it but it will reduce fees and you are in total control.
A strategy I like to use is starting with the end product you want and working back from there. If your main goal is to have a manager who can run the entire ranch you need to consider where those individuals come from and what qualifications they have. Another great place to start is with your contacts. Talk to friends and people you conduct business with. Networking is a great way to find a qualified person that may be a great fit for managing your Montana ranch or farm.
An additional way of finding a capable person to manage your ranch is to contact the local college or ag colleges. Talking to department heads can help you identify high-quality students who are graduating soon or in search of a summer internship. An internship allows you to test the waters with a possible candidate and see if they are able to manage the ranch. Finding experienced individuals will take time in order to find the right candidate, but it will pay off because there will be much less training needed in the long run. An individual with experience will also be able to take their past experiences and be able to apply what works to your ranch to ensure its success. You will be surprised how helpful college department heads can be in helping you find the right person. If they direct you to an employment office that is fine but you will want to talk to Professors that have taught the student. You are looking for the cream of the crop that is graduating. Explain your situation and how important it is that you find the right individual for the continuation of your operation. Expect to be able to discuss with the prof what incentives you have for a candidate and the upside for the right person.
Another possibility might be operation managers who are individuals or a company that specialize specifically in running ranches and farms. Companies generally provide support for every aspect of your farm or ranch including veterinary services, managing livestock, as well as overseeing the hiring process for ranch hands. This can be a more expensive option and there would need to be clear targets and expectations.
Hiring a Caregiver
Depending on your level of health, hiring an in-home caregiver might be a viable option. Caregivers provide assistance to individuals who need help in daily tasks. A caregiver may also be required if the level of care needed is beyond what a family caregiver can provide. They assess medical needs, administer medications, assist with basic needs (bathing and grooming), housekeeping, prepare meals, and provide transport for patients. They are there to assist with the things that you can no longer do. By having an in-home caregiver, you are able to remain on your Montana ranch or farm instead of a care facility.
Home care generally costs around $20 per hour which works out to roughly $40,000 a year in expenses depending on hours or days needed. This also provides opportunities for caregivers. They can take care of you for many days of the week, it pays well, and it provides them with a place to live. A great way to find these individuals is to talk to your Montana rancher contacts. A friend probably knows of someone who is a caregiver or someone who is using a caregiver. There will generally be a hiring process in order to find the ideal candidate which may take some time. The time invested will be well worth it because you want the best person possible taking care of you. They don’t always have to be medically trained. Many times if you find someone that has good common sense and is a hard worker they can be trained medically to handle the most common medical situations that might arise.
Another way to cope with the dilemma that old age presents is to downsize your property. This would be the process of selling a portion of your ranch to make the land remaining in your possession more manageable. Downsizing is a way to cash in some of your asset from your property in order to maintain operations while creating a more manageable sized property. Possible uses of partial 1031 tax strategies where you can roll your profits from selling off some of the lands into more of an income producing asset can be used for other forms of care or paying off debts. It also can diversify your income stream.
Another option you have is to sell. Selling is not a task that is best accomplished at the last minute. Years of planning are best needed to prepare your Montana ranch for sale. A great place to start is by tidying up the property. Dispose of any broken-down equipment that has no value. Fixing up the appearance of outbuildings is also helpful. A fresh coat of paint on the farmhouse can also be very helpful.
The goal is to make the grounds of the property visually pleasing to potential buyers. They need to see the care you put into the place. Take pictures of the property to be used on listings so that potential buyers can visually understand what the property looks like and includes. Include all the great scenery, wildlife, fisheries and smiling people. You want hundreds of pictures to choose from and show that you have a sustainable well kept income producing property.
When selling your ranch or farm it is critical to emphasize what sets your Montana ranch apart. Maybe you have a successful wildlife management policy in place or you have rich natural resources. The next step is to understand the tax aspect of selling your ranch. If not done properly, you could pay more in taxes than you have to.
While taxes are something you should consult with tax professionals on there are a number of tools I have seen to reduce the taxes paid or tax rates. First of all, see if you can separate your residence from the land. There is a capital gain exemption of $250,000 for a single and $500,000 for a couple that is not taxed on a gain on value of your residence. I would suggest consulting a CPA or tax attorney to make sure you are taking advantage of your home gain exclusion.
Gifting and one-time lifetime estate tax exclusion can also be tools to use. Again, consult a tax professional. Also, remember that some of your equipment and tools you use will be taxed at a different rate than capital gains and you might have depreciation recaptured at the sale. Again, consult a tax expert to help you minimize what you legally have to pay when selling your Montana farm or ranch.
Making the decision
When trying to decide which option you should implement, there is a vast number of things to evaluate. A place to start is to identify and assess your personal talents and the assets of your Montana ranch and farm. Some personal talents could be your ability to operate large equipment, or how effective you are at managing people and money. The key is to focus on these talents to see what are strengths and weaknesses.
For example, as you grow older, you may still be able to manage people and money effectively but need assistance with operating the machinery. Hire an individual who has experience in operating your farm and ranch equipment. You can attract these individuals by incentivizing them in some way. This gives them some buy-in and they will be more motivated to see the farm be successful if they feel there is some upside. It is also very fulfilling to help the right person grow in their abilities. Use each person’s talents to achieve an overall success and give credit where deserved.
You also need to determine what assets your property has and the value associated with them. One asset could be the amount of wildlife resources you have on your property. Another could be the amount of money you have made that can be spent on a new manager. You also must evaluate the connections you have. Do you have a neighbor? Would they be interested in leasing a portion of your property? Do you have kids who are willing and able to come and work on the ranch? How much money do you have invested in capital and can you sell some of it to pay for future expenses?
Ranching may be the only thing you’ve ever known which makes thinking of letting it go terrifying. By evaluating every scenario, you will be able to come to a decision on what the next step will be to ensure the wellbeing of you and your family. Most importantly, don’t let your fears drive your decisions. That doesn’t make for good business decisions.
A major factor in determining what course of action to take is where you sit financially. If you have comfortable savings and can afford to hire a ranch manager you most likely do not need to consider selling parts of your operation. This comfortable savings is also beneficial if you need to hire an in-home caregiver. By knowing how much money you have and how long it will last, you will be able to decide if you need to hire assistance, downsize, or sell to raise money. The options are weighed between appreciation of the land and putting off tax consequences versus what extra money you are having to pay to stay on the ranch. This can be done pretty easily by looking at life expectancies of the general population and your relatives ages at death. Look at the burn rate of your cash by living expenses. Give yourself several years of cushion and see if the numbers work. That will help you make decisions based on facts and real numbers.
When evaluating the value of your Montana land, one thing to consider is how much longer your agriculture land has before it becomes infertile. If your land is only predicted to have a few more years of good production before declines and needed investment, maybe it is time to sell this land before its value decreases. On the other hand, if your land shows signs of prolonged fertility maybe it makes more sense to maintain possession of that aspect of your farm or ranch. You may also be in possession of great water rights. You can use these water rights in a number of different ways such as selling it separately from the property, leasing it out to other users, or emphasizing its value in the process of a sale.
Your ranch may also have extensive timber resources. These timber resources can be of value to you in several different ways. Timber resources provide habitat for a wide host of wildlife and can increase the biodiversity of your ranch. This increased biodiversity can be very attractive to potential buyers who enjoy wildlife. Another strength of owning timber resources is that you can directly charge logging operations to harvest the timber. This can add an additional revenue stream to your ranch without you having to do any of the work. Both benefits can be strong selling points as well as being a great opportunity for you to capitalize on personally.
Having healthy grazing land is also a great strength as a Montana rancher. With grass fed cattle prices being higher than normal beef, raising grass fed cattle has become more popular. Montana Ranchers are able to earn more money from these cattle and want high-quality grazing land in order to charge a premium price. To increase the quality of your grazing land, possibly consider hiring someone to increase the fertility and longevity of the grazing land. Potential buyers will be willing to pay more for good grazing land because it will create a healthier herd for them and they can carry more cattle. Another option is to lease out your high-quality grazing land to other ranchers.
If you own a herd of cattle as a Montana rancher, there are many things to consider when evaluating your options. Depending on cattle prices, you may be enticed to sell or not. A healthy herd will attract buyers who will pay for healthy, high-quality cattle. Another option is to try and sell your entire heard as a package deal. Instead of selling your cattle one at a time, it may be more beneficial and less labor intensive to sell the entire herd at once. This can be an option when looking to downsize or sell your Montana Ranch. For additional information about the current cattle market, you may enjoy reading this article about Montana cattle.
Montana Ranch Equipment
Another asset you own is equipment to work your Montana farm. From farm equipment such as combines and plows to ranch equipment such as tractors and trailers, there are opportunities to capitalize on these assets. One question to consider is, what should I do with the equipment I no longer use? One route is to sell equipment that you no longer use. This will help liquidate some of the money you have invested in your equipment. Another alternative is to lease out the equipment. You remain the owner but someone else is renting it from you for an extended period. This allows you to receive revenue while not having to maintain or work with the equipment. If you still need the equipment but can no longer operate it, consider hiring someone with experience running the equipment. Just make sure you conduct routine maintenance and they carry the cost of insurance.
Another asset that Montana ranchers or farmers may have is a good wildlife population. Hunting and fishing are entrenched in the lives of the majority of Montanans. By creating and maintaining a healthy wildlife population you could consider the possibility of starting an outfitting company or leasing that right out. You can charge people to come and hunt or fish on your property as well as offer a guide service. You could also hire someone who specializes in wildlife management who runs the outfitter as well as maintaining healthy wildlife populations. Another task they must accomplish is improving the land. By utilizing the natural resources of your farm or ranch, you are able to bring in quite a sizable amount of revenue through outfitting.
Who can you go to, to get help?
You may be feeling lost in the midst of reading all of the things you need to prepare for, but you do not have to go through this process alone. There are many individuals who can help you prepare for the inevitable effects of growing older. First of all, you can go talk to a real estate agent. Not all real estate agents are out for the quick sale. Buzz has a background in improving ranches and farms to get the top dollar over a period of years.
Also, you could talk to a financial planner or business consultant such as Paul Stafford. Paul… http://www.allies21.com/about
Another individual that can guide you through this process is Matt Bryan who is an Estate Tax Attorney. https://www.linkedin.com/in/matthewalexanderbryan/
There are lots of options available to you as Montana ranchers to find the best scenario for you and your family. From asking a child to come home, to hiring people to help, you can find a way to remain where you love, your Montana ranch and farm. After evaluating available options, you must look back at yourself, your ranch, and the assets and talents that you have. From there, you can determine where you can continue to operate. If you found this article helpful you might want to read Buying Montana Ranch, 13 Things to Ponder.
By identifying your strengths and opportunities as a Montana ranchers you can understand what you can continue to do even as you grow older. But you are not alone. By contacting one of the previously mentioned individuals you can start to develop a plan. This will help prepare you and the things you care about for the future. This will ensure that you will still be successful when you can no longer work at the level you used to.
If you found this post informational you might also want to read Montana Ranch: Revenue Opportunities or Prescribed Burns in Montana Ranching and Farming for more information on Montana ranchers and ranches. If you are feeling social you can check us out on our Facebook Page and give us a Like or subscribe to our Blog.
If you need help on any of the above or have a comment, I would love to hear from you. Give me a Shout!
Buzz Tatom is a Partner at Venture West Ranches. He moved to Montana 6 years ago and still owns the 5T ranch in Texas. He has a BBA from Texas Tech and an MBA from SMU. Buzz and his wife, Kathy are involved in a number of business ventures. He also enjoys being a part-time professor at MSU in the business school and mentoring students.