Why Every Co-Owner of Farmland Needs a Buy-Sell Agreement

When two or more people co-own farmland—whether it's a father and son, siblings, or long-time business partners—one critical question looms: What happens when one of us retires, passes away, or wants out?

A thoughtfully crafted buy-sell agreement, often within the structure of a land partnership, is a powerful tool to manage these transitions smoothly. Without one, families risk unnecessary legal disputes, financial hardship, and even the loss of land that’s been in the family for generations.

Why a Land Partnership Makes Sense

A land partnership allows co-owners to spell out rules and expectations in a legally binding way. It creates clarity around several key areas:

1. Voting Rights and Family Decision-Making

If a partner passes away and their share is inherited, does each heir get a vote? Or should the heirs vote as a single unit? Many families prefer requiring heirs to vote collectively, preventing disagreements among siblings or cousins from disrupting the operation.

2. Valuation: How Much is a Share Worth?

The method you use to value the land can significantly impact whether the next generation can realistically continue farming. Options include:

• Appraised Value: Often too high to allow for farm continuity.
• Tax-Assessed Value: Set by the county, objective, free, and updated annually. It usually lags behind fair market value, which can help keep the farm in the family.
• Discounted Value: Whether off of the appraised or assessed value, discounts can be built in to reflect real-world transfer goals.
• Stipulated or Fixed Value: Partners agree annually (or periodically) on the farm’s value.
• Balance Sheet Value: Use your farm’s balance sheet to reflect a defensible, lender-ready value.

3. Buyout Terms: Timing and Payment Structure

Rather than requiring a lump sum payment, many agreements allow buyouts over time—sometimes as long as 20 years—with options like balloon payments in year 5 or 10. Interest is often based on the Applicable Federal Rate (AFR), providing a stable and IRS-approved framework.

4. Triggers: When Does the Buyout Happen?

Typical triggers include:

• Voluntary retirement or exit
• Death or disability
• Divorce or court judgment

If a death triggers the buyout, life insurance can be a helpful funding tool—particularly for younger farmers where premiums are more affordable.

Planning with Purpose

The ultimate goal of a buy-sell agreement is to preserve relationships, ensure the farm’s continuity, and avoid the courtroom drama that too often arises from a lack of planning. It gives everyone a clear structure to follow—one they’ve all agreed to upfront.

However, if you're in Minnesota, don't forget the state’s Corporate Farm Law. Forming an LLC or partnership to hold farmland comes with legal requirements—and failure to comply can cost you significant estate tax savings.

Planning ahead can save your farm—and your family—from future heartache. A strong partnership agreement today builds a legacy for tomorrow.

Need help navigating these decisions? Visit FarmLawyer.com for resources and guidance tailored to family farms.

To learn more about farm succession and estate planning, you can also keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

If you’re ready to start being proactive about co-owned land and your estate plan, contact us to get started.

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