We have a child that wants to farm. When we recently sat down with our attorney, he asked what the value of the land was and we told him under one thousand an acre. We set up a plan where our son can buy out the family farm interest from his siblings, but we really didn’t specify the value of the land in the will. Later, some land, next to ours, went up for sale and it sold for over twice that value. It’s got us thinking if our attorney did things right in our will to make certain our son will continue to farm? – Not Worth Two Thousand.
Dear Not Worth Two Thousand: When you set up your estate plan or transition plan, if you’re not giving the professional helping you the right numbers for the true value of your property, you’ve set up a plan that’s obsolete even before the ink is dry.
The results? Either your farming son won’t end up farming or your non-farm children are going to be so upset they’ll hire a different attorney to get paid a ‘fair share’ for their land.
I’ve listened to all of the arguments.
‘You can’t pay for land at that high price’. What you’re saying is ‘My farm operation can’t make it pay at that high price’. That doesn’t make any difference. There are plenty other people out there – farmers and non-farmers alike – who do think they can make it pay at that price and will pay that price. If your farm son has to contend with these buyers, and you’re six feet deep, he’s going down.
‘Land is going to come down in value someday and I don’t want to set it too high!’ Historically, land has gone down two times – the Great Depression and the eighties when fifty percent of the farmers were wiped off the map by high interest rates, inability to borrow, double digit inflation and no fuel. It was the ‘Great Farm Depression’ of our generation. Do we really want to have to go through times like these again to see farmland values decline? And unless they do happen, farmland is not going to decline.
This list of justifications goes on and on.
Let me tell you the actual truth about what happens when you die.
Nobody cares what ‘you thought’ the land was worth, or what your son ‘should’ pay for land, or what the future ‘might’ hold. Everybody is going to look at the appraised values when you die and, if you son is lucky, he’ll be able to work off of appraised values. If he’s not so lucky, and one of the non-farming children gets a bid from the big farmer in the county, then your son is done. Of course, he was already done using appraised values so the higher bid won’t matter if appraisals are twice as high as what you told your planner to use as a basis for your estate plan.
You don’t realize what danger you’ve placed your farm in when you ‘undervalue’ your assets by such a large amount.
The same goes for machinery that you think will wear out or be gone by the time you die, but it’s worth close to a million dollars today. If you die, your son’s going to pay market price and, unlike land, he’s going to have to pay that in a lot shorter time. Same goes with livestock operations that are an all-time high value.
The same is true for people who did their estate plans five to ten years ago and used true numbers from this period of time. We’ve seen a two to four hundred percent increase in value in the past decade and yet you’re running around with a will from 2001 or 2008. It’s just not going to be realistic with today’s values.
You can justify a lot of arguments why things are so high today and shouldn’t be. But do your really want your family farm to end because you weren’t realistic in your estate planning? That’s stubbornness to a fault – and the next generation is going to pay for this by losing the family farm.
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Toll Free: 1-800-373-4078