Credit Due

Written by Michael Baron on . Posted in Equalization

Dear Michael:

We have been farming with my parents for many years now. Even though we’ve bought some land and some machinery, my parents still own most of the land. When we came back to the farm operation, my Dad was using old machinery, was using outdated farming techniques, and still owed quite a bit of money on the place. I came back and helped him update, slowly but surely, and now we have equipment that’s increased yields which, in turn, has paid off all of his debts.

My problem is I helped Dad and Mom do all of this – including taking little to nothing in wages for many years while my wife worked off the farm. Now it sees I’m going to have to buy out shares from my siblings when they die – at a reduced rate of Fair Market Value – but with today’s Fair Market Value, they can discount it by fifty percent and I still won’t be able to afford it? How do I get Dad and Mom to give me some credit for what I’ve done for the family farm? – Credit Due.

Dear Credit Due: In your particular situation, it’s likely the family farm wouldn’t exist any longer if you hadn’t come back to work with Dad and Mom through the lean times.

What’s bad is that Dad and Mom haven’t changed their estate plan to reflect the amount of help and expertise you brought to the family farm. As little as ten years ago, there were only two major factors in building a family farm – labor and money. In the past decade, we’ve seen a new factor emerge – technology. Without you bringing technology and new farming practices the family farm, the farm wouldn’t be there today.

Dad and Mom grew up in a generation where you never had too much, but if you worked hard enough and managed your money right, you could eke out a living.

When you came back with new ideas, it created new income. This new income was plowed back into the farm operation.

Albeit nicer for you to have a great farm operation with better buildings, better machinery and more value in the land, long term your contribution to the family farm is working against you. Especially if your siblings are now going to share in this new farm wealth created in Dad and Mom’s estate.

To be fair with Dad and Mom, however, this growth in the past decade has been meteoric, to say the least. It’s put Dad and Mom into a ‘let’s wait and see’ mode. Everyone’s in a holding pattern right now as they wait to see what the value of land and other farm assets are finally going to be when they die so then they can make their estate plan.

Many people have seen their land values go up two, three or even four hundred percent in the past decade. A reason Dad and Mom might be holding off on plan, which includes you, is they are waiting to see what land values are going to be. They’re from a generation who believes ‘what goes up must come down’ and, secretly, they believe land will drop off in value – and it might.

Whether or not there will be a drop in land value or not is financially inconsequential to the estate planning process, however. If land values drop, it’s due to the farm economy finally taking the dreaded drop off in incomes that’s been predicted for years.

Should this happen, if their plan was to wait until land drops off in value, economically you’re going to have less income to buy the assets from your siblings than you did before – so your problem is not resolved at all by a drop off in farmland value.

The second issue which might be stopping your parents from recognizing what you’ve brought to the family farm operation is they really don’t know how to quantify – in dollars and cents – what your contribution has been.

That’s why we put a new tool on our website – Equalization – that you can factor in the number of years you’ve been working there, what value you’ve brought to the family farm operation based on what your parents had before you started farming, what they’ve added since you came back, and what percentage you shouldn’t have to buy back from the siblings who didn’t contribute to the growth and profitability of the family farm.

It’ll certainly give you something to talk about with your parents and part of the form also shows whether or not you can even feasibly take over the family farm upon their death. Once they see the real numbers, it’s hard to argue with the fact if they do nothing, the farm will die with them.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.