Farm Law and Ag Law Blog

                                    It has begun.   Nervous clients, including farmers and others, have started calling with growing concern   about what can only be described as nightmarish changes to federal tax laws.   Changes being discussed are a extreme reduction of the current federal estate/gift tax exemption, elimination of step up in basis, elimination of Section 1031 like-kind-exchanges, as well as other drastic changes being proposed by the new administration.   Before delving into the subject matter in more detail, people should remember the immortal words of Yogi Berra when he said, “it’s like déjà vu all over again”, and look back on December 31, 2012.   When the clock was to strike midnight, we were not going to see Cinderella’s carriage turn back into a pumpkin, but the federal gift and estate tax exemption was to plummet   from $5.12 million per person all the way to $1 million   per person.   Prior to that, taxpayers had enjoyed the ability to pass up to $5.12 mill

(Authors Note:    This article will be a multi part series that discusses some of the challenges we are seeing due to the current farm economy and offers some thoughts and suggestions on action that can be taken.) Most of us know where the saying “canary in the coal mine” comes from.   Basically, canaries were used in mines from the late 1800s to detect gases, such as carbon monoxide. The gas is deadly to humans – and canaries alike – in large quantities, but canaries are much more sensitive to small amounts of the gas, and so will react more quickly than humans. I always envisioned that a miner would stick a canary in a bird cage down in the mine, and if they saw the canary drop over dead, then it was time to get out.   Boy was I wrong.   A device was actually invented (see above picture) that had a circular door that would be kept open and had a grill to prevent the canary escaping. Once the canary showed signs of carbon monoxide poisoning the door would be closed and a val

In last month’s article we discussed whether or not the next generation can afford to take over the farming operation.   I received a lot of feedback on the article and one response stuck with me.   The question was posed, if the farm is not making ends meet now, how can it then be profitable to the next generation, especially being profitable enough for to bring in the next generation?              It was a very good question and had me thinking on a response for quite some time.   I will first lay out a disclaimer (we attorneys are good at doing such) and say that I am not a farm economist.   Nor am I versed in financial advising.   In addition, not every farm is going to be helped by what I write in this article, nor is what I write about a good fit for everyone.   I am merely going of off 14 years of law experience and having worked with hundreds and hundreds of farmers running just about every type of farm operation there is.   Here goes: 1.        Farm Structure:   The

In the not so distant past, economics played a lesser role in farm succession planning.      Let’s face it, with 7 dollar corn and 15 dollar beans, their generally was ample money to bring in the next generation into the farming operation and/or have the next generation buy out the older generation.   Now, with prices that are break even or below, economics play a much greater role.                The question becomes how do we ensure the next generation can financially afford to take over the farm?   I was recently asked how does a farm family pass on a farm if the next generation cannot afford it.   We all know it is next to impossible for someone to break into farming due to the capital costs of land, machinery, and so forth.   So, how do we expect the next farming generation to do the same?                In many instances,   for the older generation, economics and the need for income is so important that succession plans do not get established because the older gene

Will your farm be in the 97% club or the 3% club? One of the overriding goals that farmers have is that their farm operation continues on to a successor.  Then why is it so difficult to get farmers to put a succession plan in place?    A recent statistic stated that only 33% of all farms in this country will pass to the next generation.  That number does not seem shocking.  Of the farmers that are over 60 years old, representing the “current generation”, it is entirely plausible that only 1/3 of the farms transfer to the “next generation” (i.e. people aged 30-60) over the next 15-20 years when the current generation retires.                The same statistic source went on to say that of the 33% of farms that transfer to the “next generation” only 10% of those will pass to a third generation.   Whoa.   Let’s take a second and do some math.   We have roughly 2 million farms in this country.   If only 1/3 transfer to the “next generation”, then that means we drop to 660,

Anyone involved in agriculture knows that we are currently experiencing tough times.  Several years of low commodity prices have eroded much from the “good years” that we all experienced a few years back.  However, most of us realize that farming is cyclical and are hopeful for better times ahead. Succession planning and family fairness issues are easier in good times.  For example, if a husband and wife have three children, only one of which farms, the couple knows that in good economic times the farming child has a greater ability to buy out non-farm children.  As such, a husband and wife may have a plan where all three children inherit equally, knowing that the farming child will utilize the good economic times to purchase the interests of the non-farming children. PREPARING FOR HARD TIMES The outcome changes greatly in harder economic times.  First of all, if the farming child(ren) does not receive an ample