Rising asset values change the discussion
Land, equipment and in many cases quota values have appreciated dramatically over the past decade, altering the dynamics for transferring a farm to the next generation.
Even relatively modest family farm operations have seen their net worth increase by millions of dollars. While having more wealth certainly shouldn’t be viewed as a problem, high asset values don’t necessarily translate into a high level of annual income.
“There can be difficult discussions as Mom and Dad attempt to be fair with both their farming kids and non-farming kids,” says farm planning specialist Kerry Riglin. “Non-farming kids see the high asset values and may expect an equal share.”
“A farming son or daughter may view their years of work in the operation as sweat equity. Their non-farming siblings may view it as an opportunity they never had,” Riglin notes.
Most farms are not viable if the incoming generation has to pay full value for all the assets. That makes the transfer no different than starting a farm from scratch.
Based in Wainwright, Alta., Riglin sees many operations where there just isn’t a lot of capital to equalize benefits among the kids. A great deal of the net worth vests in the farmland. As a result, non-farming kids often end up with title to some of the land.
No magic fix
This can be a workable solution, but it can also create big problems. Unless there are provisions guaranteeing affordable access to the land for the farming child, the viability of the farm can be threatened.
There’s no magic solution, but many tools exist for planners once a family knows what it wants to accomplish. If an ongoing viable farm operation is the primary goal, non-farming kids may have to settle for less – or at the very least they may have to wait longer to get their share.
“Also part of the equation,” Riglin notes, “is what do Mom and Dad need for resources in order to retire? Sometimes they don’t realize how much they’ll require for living expenses.” Unexpected challenges can also arise, including health concerns.
Along with rising asset values come tax considerations.
The million-dollar lifetime capital gains exemption can be exceeded more quickly than many producers expect. And non-farming land owners eventually lose their ability to roll land to the next generation without triggering capital gains.
More farm wealth than ever before is passing from one generation to the next, and more than ever professional help is needed to avoid potential pitfalls and institute viable solutions.