Passing down the family farmPublished 9:34am Wednesday, January 22, 2014
COURTLAND—One of the great joys in life that any parent wants to do is “pass something down” to their children. You hope to pass along your vision of the important things in life. Strong family. Work ethic. Family heritage. And along with all of those ethereal items, you also need to find a robust means of passing along your assets with minimal loss to Uncle Sam, without straining sibling relationships, and without disrupting the whole business.
Of course this is not something you can do in a day or a week. This is a long-term and continual process with dynamics that may change over time. With each birth, marriage and career decision comes a life-change that may alter the specifics of how the transition occurs.
Several prongs involved in passing things down: how much, to whom and how. Sadly, due to assumptions and strained relationships or lack of legal understanding, things can go awry. But with plenty of lead time, preparatory leadership, and open and honest communication; this process can be a blessing rather than a curse.
The average age of a Virginia farmer is 58-years-old. This means that at some point in the next few years, they are going to have to consider passing the reins over to someone else. The “When I’m gone, you all figure it out” option is often a poor one, which may cause familial division even amongst previously amicable siblings. Parental desires and wishes clearly communicated, though difficult to carry out, will often preserve the long-term peace as children can cope with expectations.
Without a proper succession plan in place, the family operation could be lost to estate taxes, legal fees and sibling fighting. It is important that accurate and up-to-date methods are used to structure the business assets in such a way to ensure control and stability while reducing tax burdens. Professionals who are familiar with the breadth of legal and financial tools available are worth their weight in gold in preventing asset losses or forced sales due to unexpected liabilities. The maze of tools available (corporate structures (C, S, LLC, FLPs, etc.), wills, trusts, gifting, tax strategies and so on) is extremely difficult to decipher given the ever-changing nature of business and tax law, and the variability of family dynamics. No two situations are exactly alike.
We’ve all heard the story of the three kids who all inherited equal shares of the family farm and the one who was not interested in it and wanted the cash, forcing the sale and break-up of the farm as the others were unable to buy him out. This is completely avoidable with proper planning. Reducing the emotional stress involved and incorporating fairness of asset distribution.
As a wise person once stated, “Your mom and dad don’t owe you a farm or inheritance. They owe you nothing,” he said. “It’s an act of generosity for them to pass down the farm. Farms can be replaced—families can’t.”
Virginia Cooperative Extension will host a Farm Transition Workshop, on Saturday, Feb. 8, from 8:30 a.m.- 3:30 p.m. The objective of the series is to help farm owners and their families plan for the successful transfer of the farmland and business. The program will be at the fairgrounds, 25376 New Market Road in Courtland.
Families with questions about taxes, legal and family issues of transferring their land and businesses are encouraged to attend. Other topics that will be featured in the program include:
• Goals for the Future of Your Farm – Handling the tough issues of family communication
• Business Profitability – Maximizing income to assist in farm transfer
• Retirement Planning – Developing a stable income stream in your later years
• Estate Planning – Approaching tough questions about fairly dividing your estate
• Tax Management Issues – Minimizing taxes in business and wealth transfer
• Business Organizations – Utilizing business entities to manage and transfer assets
A speaker panel will include attorneys who have expertise in ownership succession issues, the use of limited liability companies (LLCs), and other techniques used to transfer wealth, tax management issues and elder law. The $15/person registration fee will help cover program expenses and lunch with generous assistance from Colonial Farm Credit. Registration must be received by Tuesday, Feb. 4, at the Southampton Extension Office. Call 653-2572 for more information.
NEIL CLARK is the southeast regional forestry extension agent and the unit coordinator at the Southampton Extension office. He can be reached at firstname.lastname@example.org.