How to not screw myself/family members in a partnership?

[cjmc]

Short version of a long story... My brother and I are in our early 30's late 20's... When our father passed away in 2000 the small farm (480 acres) went to us. My mother inherited 160 acres across the road from her family in 2003. Ever since then we have operated the 640 acres as one business-lets call it CCK Farms LLC. The profits went into CCK's bank account and whatever it made was divided by the 640 acres and split according based on how much you owned of the ground (mom got 160 acres worth brother and I got 240 acres worth each). We share crop the farm ground with a neighbor and cash rent the pasture-so income isn't the same every year.

Three years ago together we put equal down payments down (1/3rd each) on another 160 acres. Now we pay the loan first, then whatever is left is split equally like we had done in the past. All three of us have jobs outside of farming, I am very interested in growing the farm, the other two's interest is tepid at best.

I feel our operation is somewhat unique in the fact that we can break even every year and that's okay. So my goal is to continue buying land at a rate that keeps us breaking even until I decide to go back and farm full time. The wife and I are willing to put our savings towards new land down-payments that's not an issue the other two don't want to... But if I personally bought another 160 acres I would like to use the entire 800 acres profitability to pay off the loans, this maximizes my ability to buy more land. But that would be screwing my mother and brother because they are paying off my land loan. So how can I buy more land and use all the land's income to pay off the bills?

Option 1. Put the down payment for the ground up 100% myself, but purchase the land in everyone's name (or maybe the LLC's name?). The LLC pays the land loan each year & in years money is left over its starts to pay me back as well for 2/3rds of the down payment. I run the check book so getting paid won't be an issue.

So far that's the only idea I have that accomplishes all of the goals, anybody have an other ideas or knows how someone did something similar? For those who want to comment I'm an idiot for wanting to farm/loan money with family, yeah I know the risk i'm not concerned it being an issue in this family as long as the plan is fair- but coming up with a plant that is fair to everyone is proving difficult, so I'm reaching out for help.

 

[Aaron]

Quit sticking your neck out on something that could collapse tomorrow. Take your earnings and work towards buying one partner out, and then eventually the other. Pick whichever one that could make things the most difficult for you if things get messy.

 

[greybeard]

Quit sticking your neck out on something that could collapse tomorrow. Take your earnings and work towards buying one partner out, and then eventually the other. Pick whichever one that could make things the most difficult for you if things get messy.

I agree with that..it's the simplest solution.

 

[Son of Butch]

No plan is fair if everyone in a family business is not on board with a common goal.
Either buy them out, ask them to buy you out or forget about it.
Don't know why either side would want to buy out the other in a business that only breaks even.

 

[cjmc]

Quit sticking your neck out on something that could collapse tomorrow. Take your earnings and work towards buying one partner out, and then eventually the other. Pick whichever one that could make things the most difficult for you if things get messy.

No point in buying my mother out since one day I'll own half of what she has. Brother doesn't want to sell, but also isn't as interested in putting down the capital to grow as I am. Less than 1% chance the farm collapses. Neither one would make life difficult for me, my mother loves the farm but grew up in the area of high intrest rates when lots of farms collapsed in the 80's, so she is cautious about growing & my brother lives in Europe & doesn't really care about it.

 

[cjmc]

No plan is fair if everyone in a family business is not on board with a common goal.
Either buy them out, ask them to buy you out or forget about it.
Don't know why either side would want to buy out the other in a business that only breaks even.

The farm doesn't just break even, it makes money every year, and if you take the land payment out pretty dang good money for not doing anything. My point was the farm's net income every year for the next 15 years could be -$10,000 (if we were to make a large land purchase) and that would be fine because we all have good jobs outside the farm.

I would agree with that first sentence though. That's a good thought. Much appreciated.

 

[hurleyjd]

You are looking out for your self. How about just buying the land and cash renting it to the LLC. Here is another problem that might crop up. Your are thinking along the lines of mother, brother and self. What for instance there was a divorce or death in the family and say that your part passed to your wife. What then. Better untangle your self from this situation. Here is a true story a woman in my area decided to deed her house to her thirty year old son. After the deed the son knocked up a low life woman in the area and they had a son. The son gets killed in a motorcycle wreak his heir the son who is two years old now owns the house. The mother is appointed guardian to her son and deceased sons son. She informs the mother who was living in the house she deeded to her son that the house was now not hers. The woman that is the mother to the sons son informs the mother she was going to sell the house for her son. The mother of the dead son ends up having to buy the house she had paid for and now is buying again. Hope this does not confuse you. I under stand a trust might have worked her.

 

[Son of Butch]

Here is a true story a woman in my area decided to deed her house to her thirty year old son.
After the deed the (low life) son knocked up a low life woman in the area and they had a son.
The son gets killed in a motorcycle wreck his heir the son who is two years old now owns the house.
The mother is appointed guardian to her son and deceased sons son.
She informs the mother (of the year) who was living in the house she deeded to her son
that the house was now not hers.

(Fixed a couple of things for you... ...)
The house was not the mother of the year's house as soon as she deeded it.
She screwed up by not retaining life estate.
The 2 yr old son of a dead beat dad has the right to have his best interest protected.

(A real shame that only same sex couples can marry in Texas.)

 

[hurleyjd]

Here is a true story a woman in my area decided to deed her house to her thirty year old son.
After the deed the (low life) son knocked up a low life woman in the area and they had a son.
The son gets killed in a motorcycle wreck his heir the son who is two years old now owns the house.
The mother is appointed guardian to her son and deceased sons son.
She informs the mother (of the year) who was living in the house she deeded to her son
that the house was now not hers.

(Fixed a couple of things for you... ...)
The house was not the mother of the year's house as soon as she deeded it.
She screwed up by not retaining life estate.
The 2 yr old son of a dead beat dad has the right to have his best interest protected.

(A real shame that only same sex couples can marry in Texas.)

Your point is well taken. Maybe that the moral of the story is keep everything intact antil your death and let the heirs fight it out.
I can tell you another true story that happened. A rancher in our area was married to a woman who had a son that was not his. After a deed signing ceremony deeding the ranch to the step son they were drinking and celebrating. The new owner told the old owner that he had a good mind to evict the old owner from the ranch. The old owner said I need to take a leak and returned with a pistol and shot the step step son dead. The old owner died before he could be judged for the death of the stepson after living three more years. SOB correct as much as you want here. Most deed transfers occur here in Texas so that the older person will qualify for Medicaid to take care of them in the Nursing home never realizing that they did not have to get rid of any assets to quality. House and attaching land farm equipment cars and trucks can be owned until the end of your life without keeping you from qualifying for Medicaid.

 

[hurleyjd]

Short version of a long story... My brother and I are in our early 30's late 20's... When our father passed away in 2000 the small farm (480 acres) went to us. My mother inherited 160 acres across the road from her family in 2003. Ever since then we have operated the 640 acres as one business-lets call it CCK Farms LLC. The profits went into CCK's bank account and whatever it made was divided by the 640 acres and split according based on how much you owned of the ground (mom got 160 acres worth brother and I got 240 acres worth each). We share crop the farm ground with a neighbor and cash rent the pasture-so income isn't the same every year.

Three years ago together we put equal down payments down (1/3rd each) on another 160 acres. Now we pay the loan first, then whatever is left is split equally like we had done in the past. All three of us have jobs outside of farming, I am very interested in growing the farm, the other two's interest is tepid at best.

I feel our operation is somewhat unique in the fact that we can break even every year and that's okay. So my goal is to continue buying land at a rate that keeps us breaking even until I decide to go back and farm full time. The wife and I are willing to put our savings towards new land down-payments that's not an issue the other two don't want to... But if I personally bought another 160 acres I would like to use the entire 800 acres profitability to pay off the loans, this maximizes my ability to buy more land. But that would be screwing my mother and brother because they are paying off my land loan. So how can I buy more land and use all the land's income to pay off the bills?

Option 1. Put the down payment for the ground up 100% myself, but purchase the land in everyone's name (or maybe the LLC's name?). The LLC pays the land loan each year & in years money is left over its starts to pay me back as well for 2/3rds of the down payment. I run the check book so getting paid won't be an issue.

So far that's the only idea I have that accomplishes all of the goals, anybody have an other ideas or knows how someone did something similar? For those who want to comment I'm an idiot for wanting to farm/loan money with family, yeah I know the risk i'm not concerned it being an issue in this family as long as the plan is fair- but coming up with a plant that is fair to everyone is proving difficult, so I'm reaching out for help.

Please excuse me for getting off of the subject you started the post with.

 

[Brute 23]

To answer your original question you cannot use the revenue from all 800ac if two of the partners do not want to participate. That's just not possible.

You are already running in to one of the major downfalls of a partnership.

Like most people on here I am going to strongly warn against partnerships. There is a correct way to do them but most family farms and ranches dont do what is needed. It would be worth sitting down with a good attorney and talking about your liabilities.

 

[cjmc]

I have considered buying land myself and renting it to the LLC. But then all of the rent I get from the llc is taxed like I made money even though I only broke even after paying the land loan. So I was just curious if anyone on the boards has done something that I haven't considered & made it work.

As far as divorce, kids & death goes. I have a prenatal with the wife. The land goes to my brother if I die without children. After kids I'll set up a trust.

 

[sstterry]

She screwed up by not retaining life estate.

This was the only right solution in this case. The lawyer who represented her should be sued!

But to address the original question, if your brother is living in Europe, are you the only one working the farm? That does not seem right.

 

[hurleyjd]

I have considered buying land myself and renting it to the LLC. But then all of the rent I get from the llc is taxed like I made money even though I only broke even after paying the land loan. So I was just curious if anyone on the boards has done something that I haven't considered & made it work.

As far as divorce, kids & death goes. I have a prenatal with the wife. The land goes to my brother if I die without children. After kids I'll set up a trust.

The equity you are building in the land is profit. The only deduction as an expense would be interest on the land loan. All income from an LLC is passed onto the members of the LLC as income. If you have income you will be taxed it is either now or later. I would suggest that you do not know what agreement you have with your wife.

 

[hurleyjd]

She screwed up by not retaining life estate.

This was the only right solution in this case. The lawyer who represented her should be sued!

But to address the original question, if your brother is living in Europe, are you the only one working the farm? That does not seem right.

In most cases the lawyer draws up paper and does what the client has asked them to do.

 

[Bigfoot]

I know you got pulled in to a partnership under sad circumstances, and it was unavoidable. I would advise against any future partnerships of any kind whatsoever. I have always advised against them, and avoided them. I got caught up in simply doing a favor for a family member, and lost an amount of cash so large, pride won't let me post it. That was April of 2018. Our family has always been extremely close. We have barely spoken in a little over a year now. I would have never in a million dreamt that we would come to this end over money. Money ruins everything.

 

[sstterry]

She screwed up by not retaining life estate.

This was the only right solution in this case. The lawyer who represented her should be sued!

But to address the original question, if your brother is living in Europe, are you the only one working the farm? That does not seem right.

In most cases the lawyer draws up paper and does what the client has asked them to do.

Not if I see a potential problem I don't. I advise against it.

 

[True Grit Farms]

I'm in a forced partnership with my brothers and don't have any regrets yet. A good lawyer "if there is such a thing" is invaluable in a partnership.

 

[Nesikep]

My dad knew a very shrewd businessman..
Here's some advice if you ever want to buy your brother out. Ask him to buy you out first to get a value... Then offer that to him to buy him out.

Could you set it up that as you add land, you pay for the land which comes off the profit you'd get from the existing land, but profits from the new land are 100% yours?
Current ratio is 240/240/160, after you add another 1/4 section it would be 400/240/160.

If your brother is not there working it with you, and assuming your mother isn't working on the land either, is it just you that's doing all the grunt work there?

 

[1982vett]

If your brother is not there working it with you, and assuming your mother isn't working on the land either, is it just you that's doing all the grunt work there?

There is that...plus the notion of you using "partnership" equipment and labor to farm your individually purchased land.... just another turd to kick.