“Buy the Farm” is a term which dates back at least to World War II. Each member of the U.S. armed services was issued a life insurance policy in the amount of $10,000, a great deal of money in those days. Many soldiers were unmarried and typically named their parents as beneficiaries. The parents were still living on a farm in those days, and many farms were mortgaged. If a soldier was killed, the $10,000 dollars would typically be used by the parents to pay off the mortgage. The euphemism came from the surviving soldiers in the platoon as a way to soften the reality of death while acknowledging the sacrifice of their fellow soldier by stating, “He bought the farm.”
Over the years, many of our farmer and rancher clients have pondered what would happen to their real estate after they “buy the farm.” Sometimes referred to as estate planning or legacy planning, the idea of transferring assets, after death, is of major concern. To do so in the most tax-efficient manner is paramount.
Tom’s grandaddy was 2 years old when the family began planting cotton on the home place. Years of share-cropping ended when great-grandpa, Ansel, mortgaged his future for a small farm. Whether it was “worth it” would not be made clear for years to come. It was 1899 and the farm crisis of the 1920s followed by the Great Depression was decades away. Buying land on credit and creating a working farm with a plow horse and a prayer was a formidable task.
World War I brought prosperity to farmers in America. Exports to Entente Powers grew as did the need for army field rations. Ansel began to grow wheat. In 1914, four out of every five loaves of bread baked in Great Britain was made with American wheat. Ansel paid off the land in 1919 which helped him survive the next 20 difficult farming years. His youngest son, Karl, had married Margaret during the “Roarin’ ‘20s” and took over the farm just before the stock market crash of 1929.
Without a mortgage on the land, Karl and Margaret survived the great depression. Together, they raised eight children, each of whom were born on the family farm. For the next forty years, they lived, worked, played and prayed on the family farm. The next few wars, factory jobs, shiny cities and suburbia took each of the eight children away from the farm. Except for George.
Named for his mother’s father, George was the first born son of Karl and Margaret. By 1967, George, now 40, already had four children of his own. He and his wife, Peggy, who was raised on a farm two miles away, had built a house on the back 30 acres and this old farm supported their family (most of the time). Karl lived a few more years and it was agreed, among the family, that George and Peggy “take over” the family farm. Details were swept under the rug. What was of most importance? Keeping the land in the family.
At almost 70 years old, Tom, the first born son to George and Peggy has lived on and worked this family farm since birth. In the mid ‘90s, Tom and his wife, JoAnn sent their two sons to A&M. Perhaps one of the boys would come back with an agriculture degree and take up the family business of farming. The elder son has now been teaching college in west Texas since the year 2000. The younger son married a radiologist, whom he supported through her years at medical school by selling animal pharmaceuticals in southeast Texas. He and his wife reside in Ft. Worth, near her practice. He still works for Zoetis. Neither son wants to return to the family farm. Tom and JoAnn, with the blessing of their siblings and their children, are selling the farm.
Urban sprawl1 has created the opportunity for family farms, like Tom and JoAnn’s, (purchased by the acre in the last century) to be sold by the square foot today.
Questions about taxes, wealth transfer and estate planning factor into their decision. Experts are needed, family meetings are called and emotions spike.
Rather than engaging a farm & ranch agent, the family decides a commercial real estate agent would be best. Rather than pay taxes, the family seeks to pursue a 1031 exchange. Options are discussed. Wills are re-written. It is the biggest decision this family has made in 4 generations.
We are honored they trusted us to help.
The result was a multi-million dollar farm sale, divided fairly among the family members. They deferred all taxes. They created monthly income potential via a DST to supplement their retirement income. They have a tax efficient estate plan allowing the boys to inherit the proceeds of the farm sale.
Tom and JoAnn paid cash for a beautiful house in town, large enough for everyone on any given holiday. For the first time in decades, directions to their home did not include, “turn off the paved road.” They spent a week in Italy. They drive up to see those grandkids whenever they want. From time to time, they drive through the subdivision which was once the family farm.
The client example provided is for illustration purposes only and does not guarantee the same outcome for all. Individual results may vary depending upon their siltation. Past performance is not a guarantee of future results. Names have been changed in this example.