How good times complicate farm transition
The farm sector’s recovery and strengthening the last 15 years has created the need for nuance in succession and estate planning.
“The old days of the off-farm children getting the cash and the life insurance, and the farm kids get everything else, that used to work when land was $1,000 an acre, not $5,000 an acre,” says Merle Good, business development and tax specialist with GRS Consulting.
From 1993 to 2003, flat land values and poor returns discouraged farm children from returning home.
But times since then have changed and land values have exploded, says Good, who also presents at FCC learning events.
“And that just puts so much pressure on this division of what’s right, fair and equal,” he says. “Because the land is worth so much, you can’t leave $8 million land to one child... because it’s so skewed.”
By far most parents are leaving some land to their non-farming children. At a recent farm event where Good spoke, 87 per cent of respondents stated their current will contained this provision.
But Good advises farmers only do so with the condition of the land being leased back to the farm business for a certain number of years.
Also, ensure the farm business has an option to buy the land before it ever reaches the open market.
Good adds that parents need to keep some amount of land until the day they die as there’s no adverse tax rules against it, and it amounts to absolute security.
“The kids can promise you the world but if they don’t pay, you’re not going to foreclose on them.”
While he accepts conditionally leaving land to non-farming children, Good counsels against off-farm children ever owning shares in the farm operating company.
That would be no less unfair than the offspring who stay on the farm getting a piece of their non-farm siblings’ work pensions, he says.
Parents need to be very clear about what they’re offering, and Good feels that while it’s the parents who have to come up with a proposal for their children, it’s together they create the plan.
“I call it operation clarity: I need to know exactly what I’m getting into, and what the long-term impact of that decision is.”
Transitioning your farm operation, succession and estate planning grows more challenging in a healthier ag environment and requires clarity as well as parent-progeny collaboration.
Article by: Richard Kamchen