There comes a time when every farmer has to decide what they will do with their farm. Do they sell it outright? Do they continue to farm it until the day they die and leave it to their children? Do they transfer it to a child or grandchild who wants to carry on the farming tradition?
Many farmers prefer to transfer their farm to a family member, keeping land that’s been in the family for generations for many more. However, transferring a farm is complicated and there are many family, tax, and retirement income implications that need to be taken into consideration.
There are definite tax advantages to keeping a farm in the family and creating a legacy for future generations. When a farm is transferred to a child, grandchild, or child in law who continues to run the farm as a business, tax liabilities can be deferred indefinitely. However, what if there are other children who aren’t interested in running the farm – how are they to be compensated? Do the parents have a source of retirement income or will they be living off of the proceeds of the transfer of the farm? How flexible can the parents be in setting the transfer price and credit terms?
Determining the transfer price of the farm can be a complex calculation that strikes a balance between the parents’ capital gains exemptions and the fair market value of the farm. A farm can be transferred at cost, at fair market value, or somewhere in between. The transfer price of the farm can have tax implications down the road for the children so a lot of thought and discussion needs to be put into it.
No matter what you decide to do with your farm, you should start planning well in advance. Your succession planning should include consulting an expert in the tax implications of farm transfers. Fred Mertz at Farming Families is not only a real estate agent who specializes in farm sales and purchases, he’s a certified general accountant who understand the complexities of farm sales and transfers. Contact him when it’s time to make the sometimes difficult decisions about what to do with your farm.
By Fred Mertz Join me on Google+