By: Kay Ledbetter, Texas A&M AgriLife Extension Service
While tax laws may have made it easier to pass the farm from one generation to the next, changing times have some families looking at the end of a way of life, according to a 30-year veteran of agricultural estate planning.
Dr. Wayne Hayenga, professor emeritus and Texas A&M AgriLife Extension Service specialist from College Station, has traveled throughout Texas for three decades trying to help people pass their agricultural estates on to the next generation.
Hayenga was in the High Plains recently for seven farm and ranch estate planning workshops which attracted about 300 people, most with the same goal in mind.
"Every time there are changes to the tax laws, we see more demand for these workshops," he said. "But the people basically just want to figure out how to keep the business going for one or two of the children and make sure all the rest are still taken care of."
Hayenga said estate tax laws have made that easier over the years. Forty years ago, a person could only pass on $60,000 worth of property tax free and now that’s up to $5.3 million. Also, even if the property increased in value either because of inflation or demand, he said, "we don’t have to pay any capital gains tax on it now when someone dies."
However, the continually changing tax laws and the dynamics of the agriculture industry itself are making estate planning anything but a one-size-fits-all deal, said the agricultural economist and attorney.
"Thirty years ago, I could throw something out to 10 farmers that seven or more of them would understand and be able to utilize. Now as farming operations have gotten bigger and different, if you have the same 10 farmers, I could throw out something and maybe only three have the business design that could utilize that idea. The other seven we have to come up with a different plan."
Hayenga likened it to the medical world. "When I was a kid we had the family doctor and he took care of you from your scalp to your toenails. Today we have the eye doctor, throat doctor, heart doctor, diabetes doctor, foot doctor and dermatologist. Everything is specialized these days."
And just as the operations have changed, so have the families. More often there may be no one interested in running the family farm, he said.
"You may have a 1,000 acres at Dumas and you live there and know the tenants and suppliers and everything there. But if you die and give it to three kids, one in Chicago, one in Houston and one who knows where, they don’t know people who can properly take care of it for them. So they worry about that. That asset of yours becomes a worry or a liability for them."
Economies of scale for agriculture also have changed the picture, Hayenga said. Farming was a very labor intensive operation in the 1860s when the Homestead Act was passed.
"For a family with a couple mules and some kids, it was a big job to take care of 160 acres of land and raise corn, cotton, oats or whatever. Now with the machinery, equipment, chemical applications and the irrigation systems required, for a lot of farmers, I’d say, it is hard to make a living if you don’t have 4,000 or 5,000 acres of land and some may have 15,000 to 25,000 acres.
"And rather than using a 40 horsepower Farmall M, the most recent tractor we bought had 485 horsepower, which is 10 times bigger. We can plant 300 acres a day; whereas back when I was a child, my father could plant 15 acres on a really good day."
Farms have had to consolidate to stay in business, and as a result, there are not always those one or two children who want to take over such a major operation, Hayenga said.
"The agricultural ladder I learned about back in college was: you start out farming as a hired man working for a parent or neighbor, then you leased the land, then you bought the land and were an owner or operator, and finally you retired to town and leased to a tenant or let one of your kids take over," he said.
"We don’t have that anymore, because particularly in the 70s, a lot of farmers were doing well and they educated their kids – sent them off to college and they got a professional degree. When they were ready to come back in the 80s, it was a terrible economic time in agriculture. And the question became ‘Why give up a good job in Dallas to take a terrible job back on the farm?’"
Also, Hayenga said, as more of the farm youth moved away and married someone from the big city, it wasn’t as easy to get everyone to agree they wanted to move back to the farm.
"We want our kids to want what we give them, but that doesn’t always work," he said. "What I have seen lately is the heirs have started to squabble – they just can’t seem to agree. Instead of having land in Dumas, they may prefer a larger retirement plan or to increase the size of their home, and prefer to just sell off the farm.
"We sometimes hear people say they had to sell the farm to pay the estate taxes. But, mostly that’s not true; just some people don’t want the farm."