“I’ve inherited a farm. Now what?” That was the question Allan Vyhnalek, University of Nebraska Lincoln (UNL) Extension educator posed at the 2013 AG-ceptional Women’s Conference held on Nov. 22 at the Northeast Community College in Norfolk, Neb.
Vyhnalek first asked a few more questions to the 385 agricultural women in attendance such as: What have you inherited? What is your situation? Exactly what do I have? What is the current economic situation? What is my situation? What are you going to do with it? These questions were gathered from a May 2013 article by Mike Duffy in Iowa State University’s “Ag Decision Maker.”
One of the most important things to evaluate when inheriting land is to understand the location and what exactly has been passed down, he said.
“Usually the land that is top dollar – subject to all of the coffee shop talk – is land that has very good production, good location, and has two or more deep-pocketed neighbors interested in purchasing the ground,” he said. “What kind of land do you have? Is it pasture, non-irrigated farm land, or irrigated farm land? Or all three? Who else is involved? Are there siblings who have also inherited the land? Check the title or the will. Families may need to ask a lawyer for help. Who is in charge? Is it you? Is it a shared decision? Is it someone else?”
When someone inherits land, they have many considerations to think about. It can be tempting to sell the land, and if that is the direction the new landowner is headed, there are some important things to keep in mind, he said.
“Seriously consider getting a full appraisal of the land,” he advised. “Be willing to pay for this appraisal. Understand that financial institutions will value the land differently. This is a very crucial step in order to understand what you have inherited and how best to handle it.”
“Farmland is currently valued at an all-time high,” he added. “It is high even if you consider inflation. Land values have more than doubled in the past 6-7 years. However, recent reports indicate that farmland values have stabilized over the past six months. Values at peak may decline or continue to rise. Who knows?”
Vyhnalek said selling may be very lucrative, but it can be hard for some to sell the “home place.”
“If wanting to sell, determine what your basis is first,” he recommended. “This will help you determine your capital gains tax due if you sell. If you’re selling to the cousin or neighbor, it doesn’t need to be top dollar, but it does need to be fair.”
If keeping the land, there are a different set of considerations to keep in mind.
“Estimate what the potential income might be, either from farming it yourself, having it custom farmed, or from leasing the ground,” he said. “Does the land fit your current operation? If having it custom farmed, some are opting to get a percentage of the production, to motivate the farmer to produce more. If renting, there are several options including crop share rent, cash rent, or flexible cash rent.”
Another consideration is the farming heir, and the lease.
“Is the on-farm sibling being treated fairly?” he asked. “Have they been fairly treated for the sweat equity they have contributed to the place? Doing an honest evaluation of this is key. Avoid feelings of entitlement. Remember that fair is not always equal. Our older generation thinks that fair means equal, but that is not necessarily true. It is appropriate for the on-farm heir to receive compensation for sweat equity. This may mean that the land is not divided equally.”
If the family is finding discussing the big topic of who will inherit what, there are resources available to help avoid going to an expensive and divisive court situation, he said. Take advantage of the rural response hotline to ask your transition and transfer questions. The number to the hotline is 1-800-464-0258. Also, when choosing an attorney, make sure he knows the local ag land laws and is familiar with agricultural situations.
Transitioning the farm isn’t easy, but with some careful planning, all parties involved can walk away with the farm and the family still intact.