Afamily farm may be worth millions on paper, but that doesn't mean the farming heir can afford to buy out every sibling at market value.
This is the problem Craig Sorenson of Financial Wealth Solutions addressed during an educational session, "How to Equalize Your Estate Between Your Farming and Non-Farming Heirs," during the Dakotafest farm show in Mitchell, South Dakota, this summer.
During his session, Sorenson used the example of a three-generation Minnesota farm. The mother still owned 200 acres, while her son, Nate, owned another 500 acres. Together, the family farmed about 1,150 acres, and Nate's son was coming into the operation.
The succession problem
The mother on the Minnesota farm wanted to gift her 200 acres to her son who was farming, but she also had two other children she did not want to leave out of the inheritance.
Children within the same family may grow up viewing the farm differently. The "farming heir," as Sorenson put it, is the child or children who stay to work on the farm and continue the business. The "non-farming heir" is the child or children who moved off the farm and view it more as an inheritance of real estate.
Neither heir is wrong.
"One of the things we try to get people to understand right away is that they're in two businesses," Sorenson said. "They're at least in the real estate business, and they're in their business of farming."
Sorenson specifically described dividing the estate by purpose. He said the first category might include livestock, machinery, inventory and the farming business, while another entity would hold the real estate and productive land base. Those pieces can be used differently to accomplish the family's succession goals rather than simply splitting everything equally among the heirs.
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