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Jacob Heitstuman (15 months) cheering on his daddy, Brian, and his papa, Dale, as they fill the sprayer
in Pomeroy.

Photo by Stephanie Heitstuman.

FARMER'S TOOLBOX

BEHIND THE MONIKER

Is a family farm by any other name still a family farm?

November 2021
By Trista Crossley


What is a family farm? Definitions vary, depending on the person answering, but one thing is for sure—it shouldn’t be based on the farm name.

“I think most people don’t realize that every business they interact with on a daily basis is in a legal entity of some kind,” said John Kragt, an attorney with McGuire, DeWulf, Kragt & Johnson P.S. in Ritzville, Wash. “But when people think of farmers, they think of the Johnson family, and when they see Johnson Farms Inc. or Johnson Family Landholding LLC, there’s a disconnect. There’s the concept that a family farmer shouldn’t be an entity. That doesn’t make any sense.”

Organizing a farm into multiple legal entities provides owners and operators legal protections and tax advantages. When dealing with farmers, Kragt says he strongly suggests the family forms a family corporation for the operation of the farm and even more strongly suggests forming a limited liability corporation (LLC) as a landholding entity. He called an LLC the best tool for keeping a family farm actually in the family.

“I think people see an entity name and think big business. I think it’s the opposite. I think the entity helps keep it a small family business, puts the family in a position where they have the ability to afford, at today’s prices, to keep the family farm in the family,” he explained. “Everybody thinks it’s protection from the outside world, but it’s protection from inside.”

An LLC generally sets out the expectations and legal requirements for a family on who can have ownership in the operation and puts a process in place in the event an owner wants to sell their units. Generally, an LLC gives an advantage to the other owners to buy out the family member; advantages often include a lower interest rate or a longer loan term. Kragt said he’s set up many family farms this way, and people always ask him why they need an LLC. He explained that problems generally start with the second generation of nonfarming heirs. This group didn’t grow up on the farm and likely doesn’t have the same emotional attachment that preceding generations did. They may get frustrated at the complexity of farming and feel like the investment isn’t worth the hassle.

“If you and I each have half an interest in farm ground, you could sell that to whoever you want, and I would have no say,” Kragt said. “But if it’s in an LLC, I may have the ability, depending on how the agreement is structured, to say no and buy you out at this interest rate, etc.”

The advantages of operating a farm under a corporation, usually a C corporation, are twofold: tax benefits and liability protection. There are also advantages to operating as a C corporation when dealing with Farm Service Agency programs.

The Washington State Department of Agriculture (WSDA) estimates there are 35,900 farms in the state, and that about 95 percent of them are family owned. At the national level, the U.S. Department of Agriculture classifies family farms as “any farm organized as a sole proprietorship, partnership or family corporation. Family farms exclude farms organized as nonfamily corporations or cooperatives, as well as farms with hired managers.”

For Kragt, a family farm is one that is farmed at the local level by operators that are part of the local community, regardless of where the actual landowners reside. See sidebar to hear how other Washington farmers define a family farm.

“Any daily interactions that somebody has with any type of business, that business is going to be legally put in an entity, because there are too many attorneys in the world,” he said. “The idea that you are okay with everybody you interact with being in an entity, but a family farm that provides income and way of life shouldn’t be in a legal organized entity and is no longer a family business? That’s not a realistic situation for the world we live in.”

What do growers say makes a farm a family farm?

“When a farm is passed down through the generations, the stories of the years full of painful struggles are also passed down to help us appreciate the blessings of the land, making us even more grateful for the successes we experience because of their sacrifices. For a farm to remain in the family, there will always be struggles, some more difficult than others, but no one takes more pride in growing food for the world than those who are able to pass the family farm to the next generation in better condition than we started with. It’s in our blood, and it’s in our soul!”
Michele Kiesz, Adams County

“I believe it’s a family-ran farm or ranch. Owned or not.”
Chad Smith, Benton County

“When you find one of your grandpa’s rusty tools laying in the field, you know you’re farming on a generational family farm!”
Tony Smith, Benton County

“A family farm is a tradition of agriculture handed down through the bonds of commitment and time. It is one generation teaching the next about what it takes to make a living off the land.”
Ben and Jenny Adams, Douglas County

“What makes up a family farm? When the farm starts with a family and stays with that family. The farm does not have to have to stay with the same name, just that the farm remains within that family.”
Claude Pierret, Franklin County

“What makes a farm a family farm, in my opinion, is ground that is being actively farmed/operated within a family. Family farms are managed by family members, not by a board of directors outside the family (lots of farm structures have a set of board of directors but family members comprise that board). The amount of acres or profit earned doesn’t change if it is a family farm or not. They may be a large family farm or a small family farm, but it doesn’t change if it’s a family farm.”
Ryan Poe, Grant County

“Family farms are operated by one or more members of a family who also have the majority of financial investment in the operation. If the land is also owned by members of the same family, even better!”
Marci Green, Spokane County

“A family farm is where more than one generation has been farming the property. Family farms are generational.”
Jim Kent, Walla Walla County

“I think a family farm is owned by a family and farmed by a family, although the family that owns the farm may be a different family than the family that does the farming.”
Jan Abrams, Whitman County

“A family farmer knows family, friends, community and country. A family farm understands finances, freedom and the question of why. And a family farm understands that it is the family that makes farming/living worthwhile and prosperous.”
David Swannack, Whitman County