Farm Estate Taxes And The New Red Pickup
Recently I ran into an old client sitting proudly in his new red pickup
. He was from the old days when I was pretty new at helping farmers redesign their businesses for the future. I had not seen him for years.
He is a little older than me still hanging around the farm, although he has pretty much turned things over to his daughter and son-in-law,
His sixteen year old grandson sat proudly beside him, amazingly it was his grandson who was behind the wheel. I couldn't believe it, I had to ask to see his license he looked so young.
I asked my old client if he was nuts or what letting the kid drive his brand new truck, it had less than 3,000 miles on it. He did look a little nervous sitting there in the passenger seat.
His response, "how else is he going to learn, his dad won't take him out and his mother's too busy, besides he asked if he could drive me to the coffee shop."
What drives people crazy about teenagers is they will ask for what they want to do and we have to figure out why they shouldn't do it.
Three things came to mind a week later when I was reading about estate taxes and the assertion by some that estate taxes are a huge threat to passing down the farm to their next generation.
Because the farm's greatest asset is the land, notoriously illiquid and whose price often climbs during good times and bad - estate taxes suck the heart out of the business at the worst possible time.
I am sure there are statistics to "prove" that the ultimate failure of otherwise successful farms is because of these taxes.
It was interesting to consider. My old client's father knew that all three boys wanted to farm and their farm implement dealership might not have the potential to make room for everyone. The additional land was the ideal solution, if only they could buy it right.
The old client (actually it was his dad) I was speaking with was able to double the size of their holdings back in the 60's by buying the farm of a neighbor whose family had to sell up to pay their taxes and other expenses when the old man died.
Apparently he had failed in the end, not because of the taxes, but because he failed to do anything to reduce them, divide them, delay them, or discount them during the time when he was alive.
The truth is that is was not the taxes fault. That was the law of the land and everyone knew it. They don't keep it a secret and surprise your heirs at your funeral.
My old client had seen how things had worked out for their neighbor and pressed his dad to start planning for their future. By the time I met him his dad and mom had passed way and he was ready to start the process for his family.
The second thing that came to mind was a question. Why do successful farmers put off developing a succession strategy so the farm business can survive from one generation to the next? Why do they do something that leaves the farm family at risk and sets up an unprepared next generation for failure?
Why aren't more farmers and ranchers rushing to get help developing a good succession and estate plan?
The kid behind the wheel gave me the answer to that.
He was not old enough to be afraid to talk about it. He was not afraid his grand dad would say no, and even if he did he would still have a chance to ask him again at the coffee shop in front of his friends.
As we get older we find it harder and harder to sit down with family members and express what we want the future to look like, for ourselves and the others.
If you are one of those people who will wait for the government to do whatever it's going to do about taxes or anything else, your family will have the opportunity to sell your farm someday at an auction where your neighbors will be there to pick up the pieces of your estate for 10 cents on the dollar.
On the other hand, if you are like that 16 year old kid and not afraid to talk about it, you just might be surprised with the outcome.
It's possible that everyone else has been waiting for your to bring it up.
Don't disappoint them.
by: Wayne Messick
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