An Analysis of Sweat Equity Arrangements in Farm Succession Planning

How can a retiring farmer and returning heir set up an agreement to ensure that the heir’s unpaid efforts will be compensated when the family farm transitions? In this study, three simulation farms were created using the Top Third Profit Category of Kansas Farm Management Association data. Then, three sweat equity arrangements were established and analyzed: a percentage agreement, a salary agreement, and an hourly agreement. Results found all three scenarios to be successful for each farm, with the percentage agreement being the most successful, the annual salary agreement being the next successful, and the hourly agreement being the least successful while still being a profitable option.