# Who Will Own the Land and Who Will Run the Family Sod Farm?

By David Lapham

The people who inherit the land do not all have to run the sod business. A workable family succession plan makes separate decisions about land ownership, ownership of the operating business, management authority, family jobs, and the money each person receives. Those decisions need to fit together before anyone relies on a promised inheritance or retirement date.

Start with what your family wants to continue. Is the goal to keep the land, keep producing sod, provide a career for the next generation, support the parents in retirement, or some combination? Different answers can lead to different arrangements.

I recommend writing down who will own each asset, who will make each decision, and how each person will be paid. A family can agree that everyone deserves fair treatment while disagreeing about what that means in dollars, work, or control. Make those differences visible while there is time to resolve them.

## Separate the five family decisions

A useful starting point is the distinction among assets, management, and income in [UW–Madison Extension’s succession guidance](https://farms.extension.wisc.edu/articles/values-vision-and-intentions-for-farm-succession/). For a sod farm, I would turn that into the following worksheet.

| Decision | What the family needs to decide |
| --- | --- |
| Ownership | Who owns the land, equipment, crop, and operating company now? Who is intended to own each later, and when? |
| Operating control | Who directs the business? Which decisions belong to the manager, and which require owner approval? |
| Employment | Who has a job, what work does that job require, and who evaluates performance? |
| Compensation | What does each person receive for work, including benefits, bonuses, and any documented deferred compensation? |
| Distributions | What cash may owners receive after obligations and agreed reserves, and who authorizes the payment? |

Land ownership and ownership of the operating company belong on separate lines even when the same people own both. Rent paid to a landowner is also a separate payment from compensation for managing crews or an ownership distribution from the business.

The legal documents matter. For example, [Florida’s LLC management statute](https://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0605/Sections/0605.0407.html) distinguishes member-managed and manager-managed companies. A family’s informal use of the word “manager” should be checked against its actual governing documents and applicable law. A job title, family promise, and enforceable authority may describe different things.

The following families are entirely hypothetical. Their arrangements illustrate decisions to investigate, not recommended ownership structures for every farm.

## Family one has one farming child and one off-farm child

The parents own the land and the sod company. Their daughter wants to lead the business. Their son has another career and wants an inheritance he can understand without becoming responsible for harvest or payroll.

The parents propose eventually leaving equal interests in the land to both children, while transferring the operating company to the daughter through a separately documented arrangement. That proposal requires more than agreement on percentages.

### Give the operator dependable land access

The daughter needs to know which fields the business can use, on what terms, and for how long. The son needs to know what owning land will require of him and what income he can reasonably expect.

Their discussion should cover a written lease, rent reviews, property taxes, insurance, irrigation repairs, major improvements, access, renewal, and termination. Identify who owns standing sod and what happens to the crop and improvements if the lease ends. The [University of Minnesota’s transfer strategies](https://extension.umn.edu/agriculture/farm-operations-and-systems/agricultural-business-management/transfer-and-estate-planning/farm-business-transfer-strategies) discuss retaining land separately from the operating business. Its state-specific provisions still need local review.

Rent should appear as an expense in the operator’s cash plan and a receipt in the landowner’s plan. The landowners then have their own expenses and obligations. Gross rent is not the same as cash available to divide between heirs.

### Decide what happens when an heir wants cash

An equal land interest may meet the parents’ inheritance goal but leave the son wanting liquidity the farm cannot provide immediately. Ask him directly rather than assuming that an annual rent check will satisfy him.

The family should examine an exit process: who may buy an interest, how value will be determined, how payment would be funded, and what happens if no family member can afford it. A right of first refusal gives someone an opportunity to match specified terms; it does not supply purchase money. [Wisconsin Extension’s fair-versus-equal guidance](https://farms.extension.wisc.edu/articles/common-strategies-to-consider-for-fair-vs-equal/) explains several tools and their limits.

The daughter’s work and any bargain in the operating-company transfer also belong in the family discussion. Equal land interests alone do not describe the total economic treatment of the two children.

**Decision to record:** the intended ownership of each asset, the operator’s land-access terms, the landowners’ obligations, and a feasible exit process. Have counsel coordinate the lease, ownership agreements, and estate documents.

## Family two has two working siblings with different jobs

Two siblings will own equal shares of a sod corporation. One will manage production, irrigation, equipment, and crews. The other will lead sales, scheduling, collections, and the office. Both want equal ownership, but their duties and time commitments differ.

Equal ownership can coexist with different pay for different work. Start with written job descriptions and relevant compensation evidence, then review the arrangement regularly. Include nonfamily employees in the reporting structure so they know whose instructions govern.

### A worked example of pay and owner distributions

Assume this hypothetical corporation has two shareholder-employees. Its annual cash projection leaves **$320,000 after all other operating outflows, including land rent, and cash provided for business taxes, but before the two salaries and associated employer costs below**. The figures are invented to explain the distinction. They are not sod-industry compensation benchmarks, a profit statement, or a forecast for a real farm.

| Annual cash item | Amount |
| --- | ---: |
| Cash available before the two salaries and associated employer costs | $320,000 |
| Production manager gross salary | −$110,000 |
| Sales and office manager gross salary | −$80,000 |
| Combined employer payroll costs and benefits | −$30,000 |
| Cash remaining after those employment costs | $100,000 |
| Planned equipment purchases | −$40,000 |
| Additional working cash retained | −$30,000 |
| Scheduled debt principal | −$10,000 |
| Cash potentially available for owner distributions | $20,000 |

If the owners approve a $20,000 distribution under their governing documents and applicable restrictions, their assumed equal distribution rights produce $10,000 each. The production manager receives $120,000 in gross salary plus cash distribution; the sales and office manager receives $90,000. Those totals exclude benefits and personal taxes. The additional $30,000 of working cash remains in the company.

The different salaries pay for the assumed jobs. The equal distributions follow the assumed ownership rights. Neither salary is justified simply because someone owns half the company, and neither owner should treat the entire $100,000 remainder as money available to take home.

Tax classification affects implementation. The [IRS requires reasonable compensation for S corporation shareholder-employees before non-wage distributions](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues). By contrast, the [IRS says partners are not employees](https://www.irs.gov/businesses/partnerships); a partnership needs a different payment and reporting approach. Have the CPA apply the right treatment to the actual entity.

### Put authority beside responsibility

The siblings propose letting each manager make routine decisions within an approved budget. New borrowing, a major unbudgeted purchase, a related-party lease, and a change in distribution policy require owner review. They still need a way to resolve disagreement when equal owners cannot agree.

[Iowa State’s management-transfer guidance](https://www.extension.iastate.edu/AgDM/wholefarm/html/c4-15.html) recommends clear authority and a process for disagreements. The family should specify escalation, any mediation or other agreed process, and a workable final resolution in its documents. An adviser can help a meeting; that does not automatically give the adviser a deciding vote.

**Decision to record:** job duties, pay review, routine authority, decisions reserved for owners, distribution rules, and deadlock procedures. Also specify what happens to ownership if one sibling leaves employment. Resigning from a job should not leave everyone guessing about a buyout.

## Family three wants to keep the land but has no willing successor

The parents are ready to step back. Neither child wants to manage a sod operation. Both children would like to keep the land if doing so is practical.

The first task is to accept the children’s answer. Inheriting an asset does not create the interest, skills, or availability needed to run the business.

The family can investigate hiring a manager, leasing to a capable operator, or transferring the operating business while retaining the land. Each possibility needs an identified person or business, feasible terms, and a cash plan. “We will hire someone” is still an unresolved decision until the role, authority, cost, and candidate have been tested.

### Test the role before promising continuity

If the family considers an outside manager, decide who will supervise that person, approve capital spending, review results, and replace the manager if necessary. Family landowners still have responsibilities even when they stop performing daily work.

A willing internal successor also benefits from a trial with meaningful authority. [Missouri Extension’s management-transition framework](https://extension.missouri.edu/publications/g516) describes progression from employment through increasing management responsibility and a defined mentor role for the older generation. The sequence is useful; it does not establish a universal transition timetable.

For this family, set a date to review whether the outside-management or operator arrangement is viable. If it is not, compare an orderly sale or wind-down with continuing to fund an arrangement nobody wants to lead. Keeping the land and keeping the same operating business are separate goals.

**Decision to record:** which arrangement the family will investigate, who will test it, what evidence would justify proceeding, and the fallback if it fails. Do not promise parents a fixed retirement payment until the proposed arrangement can support it.

Compare the practical responsibilities in [selling the sod business while retaining the land](/insights/sell-sod-business-keep-land) before choosing the landlord role.

## Use a family decision worksheet before changing ownership

Ask each affected person to answer independently before a joint meeting. Include spouses and others whose work, household finances, or ownership will be affected. The [University of Minnesota’s transition-team preparation guide](https://extension.umn.edu/agriculture/farm-operations-and-systems/agricultural-business-management/transfer-and-estate-planning/preparing-to-meet-with-your-transition-and-estate-planning-team) offers a useful foundation for discussing goals, retirement, responsibilities, and authority.

For every item below, record **the proposed answer, any disagreement, the person responsible for resolving it, the document needed, and a review date**.

1. **Goals and willingness.** What does each person want to own or do? What does each person explicitly decline? What income do the parents need, and from which source?
2. **Assets and timing.** List land, operating interests, equipment, standing crop, and debt separately. Who owns each now, who is intended to own it later, and what event or date would trigger the change?
3. **Management and work.** Name the operating leader, each family job, reporting relationships, and decisions requiring owner approval. What will the retiring parent still do, and when does the successor make the final decision?
4. **Money.** Separate work compensation, benefits, rent, debt payments, and distributions. What cash stays in the business? Who approves related-party payments? How will owners receive financial reports?
5. **Past contributions.** Are there unpaid wages, loans, personal guarantees, or documented promises of future ownership? What is agreed, what is disputed, and what records support each claim?
6. **Change and exit.** What happens after death, incapacity, divorce, a job resignation, poor performance, or an owner’s request to sell? How would valuation and payment work without assuming unlimited cash?
7. **Implementation.** Which decisions require counsel, the CPA, lender, insurer, or another relevant party? Who will reconcile the signed documents with the family’s stated intentions?

Do not settle a disputed promise of “sweat equity” by quietly adding a number to an inheritance worksheet. [Maryland Extension’s discussion](https://extension.umd.edu/resource/valuing-farm-heirs-sweat-equity-complicated-and-agreements-should-be-developed-fairly-compensate) explains why compensation expectations should be addressed early. Investigate existing obligations with the appropriate advisers, then document future compensation clearly.

Keep a decision log after each meeting. Separate decisions actually agreed from proposals still under review. Give everyone the same version and schedule the next unresolved question.

The [sale preparation guide](/insights/prepare-sod-farm-business-for-sale) can help organize the financial and operating records behind those decisions.

## Make continuity work if the owner cannot return tomorrow

A long-term ownership plan also needs an immediate continuity plan. If the owner dies or becomes incapacitated before the intended transition, who can direct the business and who has authority to act for each entity?

Name an interim operating leader and backup. Have counsel confirm the relevant entity and estate authority, and confirm banking access and signing arrangements with the bank. Access credentials alone do not establish authority. A power of attorney, executor role, trustee role, and company management role need to be coordinated for the circumstances in which each applies.

Keep an accessible continuity file with the authorized contacts, current obligations, location of governing documents, emergency contacts, and the information the interim leader needs. [Minnesota Extension’s farm emergency-planning guidance](https://extension.umn.edu/agriculture/farm-operations-and-systems/farm-safety/creating-farm-emergency-action-plans) supports shared maps, inventories, contacts, and plans reviewed with family and employees.

For the family plan, test one specific event: the intended successor is unavailable when the parent can no longer lead. Who takes interim control, how is that person appointed, and who decides whether to continue, hire help, or pursue another arrangement? Review the answer after major family or business changes.

A supervised [two-week owner absence exercise](/insights/sod-farm-without-owner) can test whether the agreed operating responsibilities work in practice.

## Questions families should answer plainly

### Does fair treatment require identical inheritances?

That is a family decision. Compare the whole arrangement, including assets, liabilities, work compensation, prior transfers, liquidity, and risk. Equal ownership percentages can carry different practical burdens. Explain the reasons and have the documents reflect the decisions.

### Can an owner owe tax without receiving the same amount of cash?

Yes. For partnerships, [IRS Publication 541](https://www.irs.gov/publications/p541) distinguishes a partner’s share of income from distributions. Ask the CPA to model the actual entity’s tax obligations and any proposed tax-distribution policy alongside cash needs. A cash distribution and taxable income are different measures.

### What if a successor changes their mind?

Use the agreed exit and fallback process. Discuss employment, ownership, land access, and debt obligations separately. A trial period and staged responsibilities can reveal a mismatch before the family makes harder-to-reverse commitments.

### Where should we start?

Complete the worksheet and hold a meeting about the unresolved answers. Then give the advisers a clear statement of the family’s goals, proposed roles, and cash assumptions. If the options include transferring the operating business, retaining the land, or selling both, you can [request a confidential conversation with Sod Farm Broker](/sell-my-farm) about those property and business choices.

## Sources and further reading

The linked university guidance concerns family farms broadly, rather than measured outcomes for sod-farm successions. Particularly useful starting points are [Wisconsin’s assets, management, and income questions](https://farms.extension.wisc.edu/articles/values-vision-and-intentions-for-farm-succession/), [Minnesota’s family preparation questions](https://extension.umn.edu/agriculture/farm-operations-and-systems/agricultural-business-management/transfer-and-estate-planning/preparing-to-meet-with-your-transition-and-estate-planning-team), and [Missouri’s staged management transition](https://extension.missouri.edu/publications/g516). Entity, legal, and tax references are linked beside the relevant discussion. The family situations and worksheet are educational illustrations; the actual plan needs coordinated legal and tax advice for the family and jurisdiction.