What To Do With The Family Farm?

fence around farm field at sunrise

If you work with farmers you know that one of their biggest challenges is what to do with the farm when they want to retire. The children often have careers of their own and don’t want to farm. The land, crops, and equipment are very valuable, but subject to a great deal of tax if sold.

How can the parents retire, leave the farm they love when none of the kids want to take over, and just about all of their assets are tied up in the farming operation? I’ve worked on many of these cases with very positive results. Here is the story of one of those cases.

Nancy and Don own a large farming operation in Illinois. They have three adult daughters – none of whom wish to continue farming. Farm work has become too difficult for them as they get older and they want to retire. They are having a hard time figuring out the best way to satisfy their financial needs for retirement and create an inheritance for their daughters. If they sold the farm, they would have to pay 35-40% in taxes, which doesn’t allow them to reach their financial and legacy goals. Their advisor, Randy, contacted me for ideas. We came up with a way for Nancy and Don to liquidate the farm, satisfy their income and insurance needs, reduce the tax liability, and provide a sizable inheritance to their daughters – all while providing for their favorite charities. I know, it sounds too good to be true, but all it took was the addition of charitable planning.

Nancy and Don donated part of the farm land, crops, and equipment to a Charitable Remainder Trust (CRT), providing them with a sizable charitable income tax deduction.  Shortly after that donation, they and the trustee of the CRT held a joint farm auction at which all the assets were sold. The assets sold by the CRT avoided all capital gains and ordinary income taxes. The portion sold by Nancy and Don was subject to tax, but was significantly reduced by the charitable income tax deduction they received – so they kept much more of those proceeds.

The CRT will make annual distributions to Nancy and Don for the rest of their lives.  They will use those distributions to purchase long term care insurance for themselves, life insurance to leave an inheritance to their three daughters, and still have some left over. The proceeds of the portion of the farm assets that they sold themselves are invested to provide them with more than sufficient retirement income.  At the second passing, the remainder of the CRT will be distributed to their favorite charities, including their church, support for cancer research, a local food shelf, and college scholarships for students pursuing agricultural careers.

This was a real success story.  Nancy, Don, and their daughters couldn’t be happier with the results.  Without the CRT, they would never have been able to achieve all of their goals.  They never imagined a charitable tool could help their family so much. It just goes to show that we really do reap what we sow.

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