Some Steps to a Farm Transition
Having just recently returned from my taping for the Legacy Project on farm succession planning, I will be trying to do several posts over the next few weeks on this very important subject.
Elizabeth Williams from the DTN/Progressive Farmer had a very good post on the five steps needed for the farm transition. The article dealt with a young farmer who lost his mother due to brain cancer. The estate did not owe any current tax since the assets passed free of estate tax to the husband, but if he had passed away that same year, they would have had a major estate tax problem.
The five steps mentioned were:
- Get Experienced Legal Help – Find a good agricultural estate tax attorney (or a good farm cpa) to help design an estate plan to meet the unique needs of the farm estate plan.
- Recognize that your Paperwork will Increase – If your estate goal is to reduce estate taxes, transfer property to the next generation with the least income/capital gain tax and divide your assets equitable among your children, that usually means multiple farm entities. This requires separate bank accounts, year-end meetings and compliance, etc. However, to do it right, more paperwork will result.
- Allow the Next Generation to Control or Own Something that is “Theirs” – It is important for the children to have some skin in the game to promote the pride of ownership.
- Listen and Talk to Each Other – No one can read your mind. Not being transparent can cause a multitude of problems. “A lot of animosity can build up when off-farm family members don’t know what the deal is. What is the on-farm sibling getting?”
- Respect the Division of Labor – The most successful family farm operations have distinct, complementary divisions of labor. As I said on my TV taping, find what each member does best and let them do it. The farm will be better off and the family member will feel best about themselves. Part of that comes from clearly defining the expectations that go along with ownership and management of the farm.
The cost of not planning can be very high! Even a 500 acre farm can generate a large amount of estate tax starting in 2011 if no changes are made to the estate tax laws.
For a primer on “Transferring the Farm”, go to the University of Minnesota’s Center for Farm Financial Management.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Things to think about before you ‘buy the farm’…
The keys to transitioning farm ownership to the next generation at Paul Neiffer’s Farm CPA Today…….