Want to know what one of the biggest issues is in agriculture?
Itâ€™s passing down the farm from one generation to the next. It has proved to be challenging for two reasons.
The first issue is that many farms are very asset rich but cash poor. This means the farm has a lot of things such as land, equipment and animals, but the bank account is fairly low, especially after operating loans are paid back.
When the person who owns the farm dies, the family may have to pay an estate tax, also known as the death tax. Estates worth more than $5 million are taxed at a 35 percent rate.
This is a large improvement of what it used to be, when estates worth more than $1 million would be taxed at 55 percent rate.
Hereâ€™s the catch.
â€œThe Estate Tax is a tax on your right to transfer property at your death. It consists from an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them,â€ according to the IRS.
The majority of the assets are taken up by land. Many farms consist of hundreds to thousands of acres and the value has increased tremendously over the last 100 years and this is valuing it as agricultural land. If you look at developmental value, it is even more.
â€œIn rural America, the death tax is considered one of the leading causes of the breakup of multi-generation family farms and ranches,â€ according to the National Cattlemanâ€™s Beef Association.
Another large chunk of the asset pie is in equipment and buildings. Many farms and ranches own tractors, haying or harvesting equipment and a vast array of other farming tools. When you add in a house, barns and working sheds, this value may be over several millions. You can see how it would be easy for a family farm â€“â€“ one that is not incorporated â€“â€“ to have more than $5 million in assets.
The second issue is that many children do not want to come back to the farm because they will have a lower income than they would working for someone else with no included benefits unless they pay for them.
Itâ€™s estimated that living expenses for the average farm family exceed $47,000 per year. Clearly, many farms that meet the U.S. Censusâ€™ definition would not produce sufficient income to meet farm family living expenses. In fact, less than 1 in 4 of the farms in this country produce gross revenues in excess of $50,000, according to the census.
This is especially an issue for many students who get a college education because they see how hard it is to make enough money to support a family. It can also be hard for a student to come back and help manage the farm at a young age because usually â€œdadâ€ is still making all the decisions, usually well into his 60s or 70s.
That means by the time the child can take over the farm, he or she is usually 30 or 40 and is hardly a kid anymore. That seems pretty late to be starting a career.
And the farm that can barely support one family certainly cannot support two.
Estate planning is hard to talk about and harder to put into place. Hopefully with some planning, these farms will not be lost, and hopefully kids will want to come back to the farm. If not, the future of the family farm is questionable.
Robyn Scherer is a graduate student studying integrated resource management. Her column appears Fridays in the Collegian. Letters and feedback can be sent to email@example.com.