There are a lot of varieties to choose from when planting corn and also a lot of options to choose from regarding your farm distribution. Here are 10 to choose from:
1.) Do nothing.
This is by far the easiest and most common option that I observe. Defer the decision to someone else and whatever happens, happens. Although that may sound negative, in some situations, that may be the best alternative if there are not clear farming heirs.
2.) Give a farming heir an option to buy out other siblings at fair market value.
The name may infer this must be fair, but that may or may not be the case, however at least having some option is better than no option.
3.) A percent of fair market value.
Pick any percentage that you think is right. The most common discounts tend to range from 20%-40% with all kinds of logic for why the discount would be used, including sweat equity, cash flow, no selling fees.
4.) Special use valuation.
This was a formula that was originally formulated to reduce farmland values and minimize estate tax consequences. The formula takes into account 5 prior years of cash rent less property tax, divided by a factor, usually arriving at a number around 50%-60% of fair market value. Some perceive this as fair because the farming heir is not selling the ground and needs to make a living from it.
5.) Set a price today.
Depending on your age, it may not change much or that could change a lot from the point of making a decision until your death. Some people prefer setting a price because it’s like when you buy land from an auction or realtor. The target quits moving and other plans can be put in place. A set price is definitely easier to plan for, but some people feel too much could change between now and their death. There could be risk both ways if not setting a price.
6.) Create an entity to hold the land that includes a few rules.
Everyone is getting their ownership in the land, but then hopefully the entity includes parameters for rent and buyouts. Potentially it’s very similar to #1, you just throw in a pair of handcuffs.
7.) Generation-skipping trust.
There may be a lot of value or you may just be kicking the can down the road. Is the purpose to minimize a generation of potential taxes or to prevent your kids from selling the ground? You may be creating challenges for the future generations.
8.) Give it all to charity.
If you don’t have any heirs or if all the heirs have gone off and made bad decisions, this may be a good option. Charities, of course, would love this and subsequently sell the land very quickly. This really can have some value in some situations.
9.) Direct it to a non-family member or at least give a non-family member an option.
Clearly there is some value in giving someone a chance. Sometimes finding the right match is challenging, but if properly handled this can be very rewarding. Often times a trial period of working together for several years can help you determine if there is a good fit.
10.) Give the farm to one heir.
That makes really good sense if you only have one heir, but can create tension if you have more than one heir. If giving to one heir, usually options #2-#5 become a part of the discussion. There certainly needs to be some cash or other assets appropriated to other children not on the farm assuming you want them to ever talk again.
So what’s the right answer?
1.) Are your goals being accomplished with the plan you have in place?
2.) Will it cash flow for the next generation?
3.) Is there some way to explain what you did to all your children, even if you don’t tell them while you are living?
Planting time is coming! I hope you pick the right varieties!
