The Marathon is Over

October 23, 2015 03:32 PM

After six years of planning, the Moes sign farm transition documents 

It’s done. And it’s just beginning.

The “it” is Greg and Jim Moes’ farm business transition plan. After six long, grueling years, the two brothers signed documents in October that officially inks their plan to transition the operation to Greg’s sons, Jacob and Scott, and Jim’s son, Matthew. 

If all goes well, Jacob, Scott and Matthew will each own a third of the operation by 2029. 

“Oct. 15 was a very fulfilling day at the MoDak Dairy,” says Joe Kluender, a farm transition expert with Farm Family Dynamics under contract with Farm Journal’s Legacy Project. He’s worked with the Moes for the past year. “We finalized, signed the transition plan and transferred 28% of the company to the fifth generation.”

And now that the plan is in place, the real work of implementing it begins. In the documents, Jacob and Scott became official shareholders in MoDak Dairy and members of the board of directors. Matthew, even though he does not yet own shares, was named an “outside” 
director as well.

The Moes began working with Farm Journal’s Legacy Project in 2010 with the goal of keeping MoDak Dairy, which is steeped in tradition, in their family. The farm was homesteaded in 1884 by Greg and Jim’s great-
grandparents near the town of Kranzburg, S.D., 10 miles east of Watertown. 

Starting with those humble beginnings, MoDak now milks about 2,000 cows, raises 2,500 heifers and farms 3,000 acres, of which they own a third. 

Greg, far left, and Jim Moes, far right, sign farm transition documents that are the culmination of six
years of planning.

The transition plan involves just the dairy. But the dairy alone, along with cattle and feed, constitutes a value of $10 million—or more, depending on market conditions. 

So the Moes and their advisors had to come up with a transition plan that provided for Greg and Jim’s 
retirement while not burdening Jacob, Scott and Matthew with crushing debt. 

The sons will accrue 2% of MoDak shares for each year of employment. However, no shares are transferred during the first five years to ensure each son is committed to the operation. In the sixth year of employment, each son will receive 12% of the shares. 

Scott has worked at the dairy since 2007; Jacob since 2009 and Matthew since 2012. Consequently, at the meeting in October, Scott was awarded 16% of the shares and Jacob, 12%. Matthew will be eligible to receive 12% in 2018.

Three-fourths of these shares are gifted; the remainder is sold as an “on demand” promissory note with minimal 2% interest paid annually. Greg and Jim might never demand payment of the principal, but it is in place to provide retirement income if it is needed. 

If Jacob, Scott or Matthew leave prior to 10 years, their ownership interest will be forfeited and divided proportionately among the remaining shareholders. And if they leave after 10 years, the shares must be sold back to MoDak Dairy. 

The plan is to also distribute earnings annually, at the discretion of the members. The goal is make the dividends large enough to at least pay income taxes on the pass-through income, while retaining enough working capital in the business to ensure it is sustainable. 

“Everything in this plan is being done on faith,” says their attorney Tom Linngren, with Green, Roby, Oviatt, Cummings & Linngren, LLP, Watertown, S.D. “Hopefully, after 15 years, the transfer is completed according to the schedule.”

The transition journey for the Moes has had its fits and starts. When they began discussions, Greg and Jim knew they had to do something if they wanted to keep the farm in the family. But they were still growing their business and reluctant to give up control.

Their sons were also young and inexperienced. None of them 
really had the savvy to make major business decisions. That is changing as they take on more responsibilities and as Greg and Jim relinquish control. 

One key, says Greg’s wife, Julie, is to have everyone involved in the process and speaking openly, honestly and respectfully. “Everybody has to be in the room at the same time. Greg, Jim, Jacob, Scott and Matthew have to be there as well as the transition planning consultant, the attorney and the CPA,” she says. 
Otherwise, the process becomes too disjointed, too many questions go unanswered and there is too much 
opportunity for misunderstanding. 

Painful as the process is, it is worth it in the end, Kluender says. “Ultimately, each son will own a third of the business,” he says.  

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