Question: My wife and I are in our mid-60s. We own 450 acres and farm an additional 250 acres of land. Our son, who is in his 30s, has a full-time off-farm job, but he always helps us in the spring with planting and in the fall with the harvest and fieldwork. We sold him our equipment a couple of years ago, and we have no debt. We were planning to wait a few years before we sell him the farm, but my wife is having some health issues, and we would like to start transitioning the farm to our son and his wife now. I plan to continue helping him on the farm, but my wife will not be able to. My son says he plans to quit his job in town. He has always wanted to farm. He and his wife have two school-aged children. Our daughter-in-law works full time at the local bank. With continuing low crop prices, I’m wondering if we should sell him only part of the land now and the rest later? The land has been appraised at $4,000 an acre, but we could sell it to him for a lot less, or maybe just let him inherit it when we die. He is our only child. Please advise.
Hodorff: Seems to me you have a predicament. You own a farm you want to transfer to your son somehow. First, does your son really want to farm? Could you and your son create a limited liability company that would own the machinery? Then the LLC could rent your cropland to give you an income from the land rent. Just a quick side note, with 700 acres of cropland, I feel your son would need to keep his day job. Then if there are profits in the LLC, you could divide out profits as you see fit. In the long-term plan, it is probably better for you to let the land transfer in your estate plan. If you need more income, you could always adjust the land rent, within reason.
Miller: This question raises several considerations, including your income, capital gains tax, amount of down payment for your son and his wife, and his ability to finance the purchase. You have several options to transition the land to your son. You could rent it to him, which would provide you an income and he would not need to come up with a down payment for the purchase. If you plan to gift him the land eventually, a rental arrangement will provide you a return until he inherits it. If you decide to sell him a portion of the farm, visit with your tax adviser to determine the capital gains tax you would pay on the sale of that portion of the property. Finally, if you decide to sell it to him for less than the appraised value, consult your tax adviser to determine if this triggers any gifting concerns that could be an issue with your estate plan. Best wishes with your transition plan with your son.
Hagedorn: It appears you have already taken some very positive steps toward farm transition and generational transfer. I would suggest continuing down the path you have already started. Get more involvement with the needed professionals to look at all the options available for you (and your son) in order to transfer or sell the farm. It is always important to remember that your estate is your retirement fund, so good planning and implementation can’t be overvalued.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, agricultural banking at BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. Filling in for Wantoch while she is on maternity leave is Mark Hagedorn, Eau Claire County Extension dairy and livestock agent. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919, or email them to [email protected]