Ag media devote a regular portion of coverage to the problems of farm succession and generational ownership changes. It’s the topic that keeps on giving for us—rules change, values change, even families have changed, making a successful transfer a moving target.
Rarely, however, do we offer advice on those cases where there is no successor, disinterested heirs or disagreement about ownership among inheritors. It’s not easy or enjoyable to bring a farm operation to an end in a way that minimizes financial and emotional turmoil. Like our studied avoidance of talking about lives ending, shirking the duty to plan closure for a farm is singularly negligent, and only intensifies the odds and consequences of a bad outcome. We forget a basic rule of life: things begin, things end.
Toe The Line. I attended the decommissioning of my old boat, USS Seahorse SSN 669, 15 years after leaving the Navy. It was surprisingly emotional, with grizzled chiefs and admirals visibly moved. If people can become attached to a steel cylinder with nuclear weapons, we should expect the parting of a family and the land they worked to be difficult.
But the analogy is imperfect, because the farm stays in service. It might be more like a change in command. Like the final captain, the duty of closure rightly falls to the last farmer.
Simply leaving it up to the next generation risks creating abiding grief among the heirs. It might not be the act of generosity and choice it appears. Even with precise legal wording in a will, heirs might wrestle with “what dad or mom would want.” Often they reach differing conclusions based on their own history with the parent. Meanwhile, farmer disappointment that accumulated effort of generations past will not continue is arguably self-centered, but common. That sadness gets transmitted as guilt when the decision to sell out is left to those who have little attachment to the land.
Like the final captain, the duty of closure rightly falls to the last farmer.
The result is too much farmland held by people who would be better served by other investments, but whose reverence for the wishes of a parent prevents even modest asset changes. When the last farmer truly rooted in the farm fails this duty, the heirs seldom muster the initiative for anything but changes mandated by outside forces such as financial crises, their own passing or rancorous dispute.
When there is little personal connection in farm ownership among prospective heirs, it is on the owner to dispose of it. All doubts about the wishes of the parent(s) end. Future grief is less tainted by greed.
The Tax Hurdle. Unfortunately, we have a convenient escape clause that allows final owners to duck the difficult duty of decommissioning: basis step up. This perverse tax rule means responsibly disassembling a farm when a career is over, but not the owner’s life, requires payment of untaxed, accumulated capital gains. The day after the owner’s death, those capital gains and the tax bill evaporate as the asset basis magically rises to current value.
Tax avoidance, especially those related to generational transfer, is one of agriculture’s highest goals. We will spend 99¢ in legal fees to avoid $1 in taxes. Basis step-up then becomes the trump card for reluctant owners to escape the task of selling out and watching others assume control of a life’s work.
Clear explanations to heirs of donor wishes can be done in legal documents but should also be accompanied by conversations that will leave memories that comfort rather than accuse when heirs liquidate. Preserve the tax break if you must, but don’t burden those who follow with the doubts and remorse.
Perhaps the owner would like neighbors to have first chance at adjoining acres more than realize the highest price. The sense of loss for heirs might be assuaged by this outcome. Regardless, only the last farmer can grant forgiveness for those who must strike the colors.
Read more of John’s perspective on how your farm’s future can include a better ending at AgWeb.com/better-ending
John Phipps, a farmer from Chrisman, Ill., is the on-farm “U.S. Farm Report” commentator.
