buying the farm

[dfarms11]

Anybody have any do's and do not's in reguards to buying the farm from the parents? It's that time now, and was just wondering if anybody had any experiences they would like to share.
Thanks in advance.

[burnt]

Welcome to an interesting and hopefully exciting time!

Your question took me back to that time for us and it stirred some mixed feelings.

Every situation is different. One thing to take into consideration - if you worked for your parents for a number of years without proper remuneration, it is only fair that a value adjustment for that work should be reflected in the purchase price/value, which has undoubtedly grown, in some part, due to your labor.

In too many cases the last child at home gets to do the work, for parents who are no longer able, with the promise of future reward. That can lead to great disappointment at the time of settlement when the rest of the family gets their share of the estate sale proceeds while the one who maintained and eventually bought the farm has to find funds to pay off the estate. . .

Keep things clear between all parties.

[hobbyfrmr]

dfarms,

Burnt is correct on all parts, particularily on the mixed feelings. 1. Make sure you are committed to farming because now you are stepping in. 2. Make arrangements to buy. This means everytime you make a payment, its equity. Draw up agreements, I would suggest vendor mortgage low interest. This way, if things get sideways, you can goto the bank to borrow. If you finance through bank first, and things go sideways, there may not be a plan B for short term problem solving. We had a financial planner recommend life insurance policy on parents worth the value of the farmland. Son/farmer pays the premium Mom and Dad borrow against the policy for cash to live and retire. The lending bank owns the policy, when Mom and Dad pass, the policy first pays off bank, then anyleftover goes to estate/kids.
I strongly recommend not renting long term from family. We all know the story of the guy who rented from parents for 10 years, and when they died, the other kids got some of those properties and he had to buy it off brother/sister etc. That makes long term resentment.

[hobbyfrmr]

In addition to all the great comments above, consider using a family partnership. If you parents are serious about the transition, roll their and your farming assets (not land) to the partnership and operate like that for a few years. When it comes to the point they want fully out, consider rolling your partnership intrest to a company which will allow you to access the lower tax rate to pay them and other siblings out.

The farmland stays out offering ultimate flexibility for your parents to divide the estate (ex 1/4 of land, cash/and or non farm assets to non farming siblings)

If you are the only child, the top part is a no brainer.

There are lots of steps to this and a family meeting is needed before you jump to this (especially the corp)