Handing down the family farm
Mar./Apr. 2008 California Country magazine
By Kate Campbell
California farmers and ranchers share their stories of the challenges of handing down the family farm.
Estate planning in an uncertain world
With baby boomers nearing retirement as their own parents age and require care, experts say the largest transfer of assets in the history of the world is under way. In the coming decade an estimated $140 trillion in assets will change hands in the United States. In California that means some of the world's most expensive real estate will be a large part of the assets that are handed down.
Those assets include irreplaceable working family farms and ranches whose contribution to the state's economy is estimated at more than $34 billion a year in crop value alone. With the average age of a California family farmer now estimated at 57, with the pressures of urban development pushing into prime farming areas and with federal estate taxes that can sometimes compel the sale of family property, California farmers and ranchers share their stories of the challenges of handing down the family farm.
The Leavens family avocado and lemon ranches, Ventura County
In the beautiful Santa Clara River Valley, wind-whispering leaves recall happy childhood memories for Leslie Leavens-Crowe. She sits in a restored Victorian that her grandparents once called home and talks about why she's partial to avocado trees and what they--and the lemon trees with their pesky thorns--mean to her family.
Leavens Ranches managers and cousins from left, David Schwabauer, Leslie Leavens-Crowe and Link Leavens work with the current farm-owners generation, including Paul Leavens Jr., second from right, to keep the family operation in business.
"This is where we had every Sunday dinner," she explains as she looks out of her office window at the lush lemon groves surrounding the headquarters of Leavens Ranches in Ventura County.
"We ate in the dining room, where my brother, Link, has his office now. Christmas was always here in the living room, where I have my desk.
"When I was growing up, this ranch was planted half in avocados and half in lemons. My sister Heather and I used to go out and climb the trees. We had our favorite climbing trees. … Avocados are great because the branches are inviting and you can find comfy places. We used to bring up books to read, like Nancy Drew mysteries, and peel back the shoots of new growth to taste the licorice flavor."
The family's groves are part of a vibrant farming area that produces a major share of the $192 million lemon and $87 million avocado crops grown in Ventura County. The Saticoy Lemon Association, the world's largest lemon cooperative, is located near the Leavens Ranches' headquarters and family members serve on the association's board of directors.
Today the family has more than 1,000 acres in production, and a new generation of Leavens family farmers--the nine-member "cousin generation"--is in the process of taking responsibility for governing and managing their increasingly complex farming and ranching activities. They understand that only about one business in 100 successfully survives the ownership transition to the third generation.
And as baby boomers, they recognize that the shift of their family's assets is part of a larger generational transfer of wealth going on across the United States.
What's unusual about the Leavens family is that they've decided to keep the ranches together and in operation rather than sell--and they've developed a comprehensive, multigenerational plan to remain in farming.
They've come together during the past decade to hammer out relationships and mutual understandings that go beyond the business of producing beautiful fruit. They've been creating the roots that will secure and hold the family tree together for generations to come.
To do that, the Leavens family meets once a year--all 50 or so extended family members--to make sure everyone is heard and their interests considered. The gathering includes the current farm owners (World War II generation), the management generation (baby boomers/cousins) and their spouses, followed by the new generation of children and grandchildren.
"To make these gatherings work, you need someone to help facilitate a family meeting," said David Schwabauer, a cousin of Leavens-Crowe who is a manager of Leavens Ranches and a member of the California Farm Bureau Federation board of directors.
"What we want to achieve is a shared vision for the ranches," he said. "We know that if we can't do that, we will be forced to break up the base of what makes our farming operation viable.
"We've come to realize that the ranches are a vehicle for bringing our family together. They allow us to stay together at a time when other families aren't doing that. We've discovered just how important the ranches are for our family."
The Inglenook Estate, Napa Valley
In the late 1970s Robin Lail occasionally led visitors through the Napa Valley home where she grew up.
Robin Lail, far right, a descendant of Gustav Niebaum, walks in her family's new vineyard on Howell Mountain, above the Napa Valley. Lail Vineyards produces acclaimed ultra premium wines, including "Georgia," a chardonnay named for Lail's granddaughter, holding her grandmother's hand.
One summer afternoon as Lail was taking a group through the historic house, she was hit with just how much her life had changed and how much she had lost.
"It was one of those times when you come to grips with the facts--that what you've been told all your life will be yours, is not," Lail recalled.
The house and surrounding vineyards were sold after her father died unexpectedly in 1971. As she looked from the window in the attic that once had been her playroom, she tells of being overcome with memories, surprised at the sudden surge of emotion.
The sale of her family's famous Inglenook Estate, founded in 1879 by her great granduncle Gustav Niebaum, nearly severed her connection to the bedrock of her family's history. In retrospect, Lail says it's difficult to tell if better estate planning would have eased the transfer of the family business to succeeding generations.
She doesn't care to speculate on how things might have turned out if this or that decision had been made. But, today she's sure a vision of the future is essential if the family home or business is to be passed on to the next generation, particularly in light of the current troubling situation with estate tax laws.
Inglenook Estate is known today as Rubicon winery, owned by Hollywood filmmaker Francis Ford Coppola. He bought part of the estate in 1975 and then acquired the original Inglenook winery building 20 years later. As he reunited the estate, he also put a valuable piece of Napa history back together.
"Our land and our homes anchor us in what we value most," said Lail, who established and operates Lail Vineyards in Angwin. "It provided the foundation for our creativity and innovation in the past, and it offers us opportunities in the future."
Tony Correia, respected California farm and ranch appraiser, said, "I don't really know what the value of an estate like Inglenook would be in today's dollars. But, instead of putting a number on it, I'd point out that the asset is irreplaceable.
"A prime estate in the heart of Napa Valley is a true world-class asset. You can't just walk down the street, see a 'for sale' sign and buy one."
The Deardorff family walnut farm, Stanislaus County
Fixing federal estate tax laws would help Stanislaus County walnut grower Walter Deardorff. Like his father before him, Deardorff has farmed his entire life. And he hopes his son, Rusty, will be able to continue to do the same. At age 74, Walter said he's slowing down and he's giving more thought to what will happen to his walnut ranch when he's gone.
Rusty Deardorff's daughters, Kathleen, center, and Jenna, far right, represent a potential change in the family's father-to-son tradition of handing down the farm. Pictured here with the girls in one of the family's walnut orchards are Rusty's father, Walter, and his wife, Janet, on the left, and Rusty and his wife, Antoinette, toward the right.
Walking through a newly planted orchard last spring, Deardorff talked about his family's values and farming experience. He stopped for a moment to check on how his granddaughters, Kathleen, 14, and Jenna, 13, were doing with the pruning of the young trees.
Like many others, the Deardorffs have followed the time-honored tradition of handing down the family farm or business from father to son. But as Deardorff approaches retirement, things have changed--in the world, in California and within his own family.
Deardorff pointed out that there has never been another time in history when government policies and regulations have had a greater influence on personal assets and the viability of family businesses, including farms and ranches.
"Hanging in the balance of this massive transfer of wealth are the agricultural assets the nation depends on for its food supply," he said.
"With all these complexities and the uncertain environment for estate planning, I can't afford to get set in my ways--not if
I want this family farming business to survive. And I can't quit working if I want to provide for myself and my wife."
The Deardorffs have formed a family limited partnership and Rusty, along with his sister, Heather, are beginning to build equity in the company through yearly gifting. They also regularly consult with estate and tax planning experts because the family believes handing down these valuable assets is an active responsibility that requires everyone's involvement and ongoing attention.
Rusty Deardorff, 44, said that even though his father is an advocate of estate planning and wants to see the family's farming business continue, it can be a difficult subject to discuss.
"Let's face it," he said, "sitting down and talking with my dad about these things isn't easy. It's about control and not wanting to let go. It's about doing things differently than past generations and keeping up with all the laws and regulations. It's a lot of work, complicated and, at times, emotionally draining."
Estate planning can seem like a puzzle, particularly with the current uncertainties, said Stockton attorney Scott Beattie, who helps advise the Deardorffs. "Failing to make plans can be worse. Walter and Rusty know that if they don't plan, they'll be facing a potential disaster."
Beattie said one of the best approaches to estate planning is to structure asset holdings so that the current owner does not own 100 percent of those assets at death. The shift in ownership is done gradually and methodically over time.
Beattie said once clients decide that a comprehensive estate plan is needed, their comfort level with the process increases as they gain understanding of the legal aspects and move through the steps of creating the plan.
Estate planning overview
Estate planning comes in several different forms. Farmers and ranchers, like their counterparts in other occupations, deal with the challenges in a variety of ways.
"Estate planning in today's economic environment isn't just for those with large estates," said Emily Robidart, California Farm Bureau Federation director of taxation and farm policy. "It's essential for anyone who wants to protect family assets and pass them on to heirs. But, it has become a lot more complicated--and riskier--given current estate tax laws and rising land values.
"California real estate values, not just for farms and ranches, but for all kinds of property, make paying estate taxes and still maintaining ownership very difficult," she said. "Some families have no choice but to sell or go deeply into debt to pay the estate taxes.
"The estate tax is one of the driving forces behind the breakup of family farms," Robidart said. "The idea that these taxes only affect the very wealthy, who can afford it, is baloney. Ask anyone who has lost a loved one and then has had to settle with the IRS."
Farm Bureau has long been a supporter of estate tax reform to help keep family farms together, Robidart said, and was active in getting Congress to pass the 2001 Economic Growth and Tax Relief Reconciliation Act. It includes a gradual reduction in federal estate taxes that began in 2002.
Under the law, the estate tax will be phased out completely in 2010. But then--if Congress does not act to change or abolish the sunset provision--the tax rules that were in effect in 2001 will spring back to life.
Congress tried to fix the problem in 2006, but fell three votes shy of passing a bill in the Senate. Farm Bureau is not giving up, Robidart said. "We'll be working hard with members of Congress to address the problem during this session."
Kate Campbell is a reporter for the California Farm Bureau Federation. She can be reached at 800-698-FARM or firstname.lastname@example.org.