Farm Transfer Planning

To plan for transfer of the farm to the next generation of farmers, you need to:

  • Identify your “big picture” farm goals, (i.e., keep the productive land in agriculture, maintain affordability for the new farmer)
  • then sketch out your actual transfer strategies

Reminders

  • Everyone needs a will, but A WILL BY ITSELF IS NOT ENOUGH
  • You can treat family members fairly, even when assets are not divided equally

Four Basic Goals

  • Transfer ownership and management of the farm
  • Avoid unnecessary transfer taxes (income, gift, estate)
  • Ensure financial security and peace of mind for all generations
  • Develop the next generation’s management capacity

Getting Started

  • Set goals
  • Inventory assets and liabilities
  • Determine ownership of assets
  • Assemble farm transfer “team”
  • Family members
  • Financing advisors
  • Accountant, tax experts
  • Attorney
  • Others?

Basics

  • Choose the appropriate form of business organization
  • Complete a will and keep it up to date
  • Complete a “living will” (health care power of attorney)
  • Complete a financial power of attorney
  • Make plans for both management and ownership of the business and of the land
  • Transfer operating assets before farmland (usually)
  • Provide liquid assets for non-farming heirs, and to pay estate settlement costs

Farm Transfer Strategies

  • Gradual transfer of responsibilities and ownership is best
  • Use written buy/sell agreements, and review them periodically
  • Consider limited partnership and other entities for separating management and ownership rights
  • Long Term Care Insurance can protect assets
  • Tax reduction strategies include:
    • Estate splits can double the amount of exempt assets ($1.5 million per person in 2002)
    • Annual gifts can be a useful tax-free transfer option
    • Donation of an agricultural conservation easement can help keep land affordable for farming, as well as provide a useful tax reduction strategy for highly appreciated farmland
  • Purchase of Development Rights programs can help in farmland transfer:
    • Makes land more affordable to the farming heir/entering farmer
    • Generates cash to
      • buy out non-farming heirs
      • pay estate taxes
      • re-capitalize the farm business
      • provide a “retirement account” for the senior generation