so, you’ve inherited a farm, now what?•fee simple –you can dispose of the land anyway you wish...

Allan VyhnalekNebraska Extension Educator

[email protected]

1

SO, YOU’VE INHERITED A FARM, NOW WHAT?

Allan VyhnalekExtension Educator, Farm Succession

303C Filley Hall, East CampusE-mail: [email protected]

Phone: 402-472-1771Website: http://agecon.unl.edu/succession

TOPICS

What are your options?

• How ground is owned

• Keeping the ground

• Farming or renting

• How to succeed to the next generation

• Selling the ground

• Options

• Tax consequences

mailto:[email protected]

http://agecon.unl.edu/succession


[email protected]

2

Decision Tree

How we own the land matters

• Fee simple – you can dispose of the land anyway you wish

• Joint tenant – must have permission of all to dispose of the asset (the title may say JT WROS – with right of survivorship)

• Tenant in common – you can force partition or sell off your interest


[email protected]

3

Keeping or selling – the land – consider……

Reasons to keep

• Family roots/history

• Return on investment historically solid

• Pride in ownership

Reasons not to keep(sell)

• I don’t farm and don’t have the skills to manage

• No interest in ownership

• Can use the money to pay other bills

• I have stepped up basis, so no capital gains tax to worry about


[email protected]

4

Options for selling

• Please consider getting a professional appraisal

• Who are you selling to?• Relatives (do you discount?)

• The current tenant

• Other neighbors

• I don’t care……

• How are you selling?• On contract for deed

• Payments come in over time (you are financing the deal)

• Outright sale• You receive all money at time of sale


[email protected]

5

Options for keeping

• Estimate what the potential income might be:• Farming it yourself

• Does it fit the current operation? (next generation)

• Having it custom farmed• Traditionally pay $$ per acre to have operations

completed

• Newer trend, have it custom farmed for a % of the production – to motivate farmer to be timely

• From rental• Crop share rent

• Cash rent

• Flexible cash rent

If keeping – consider professional farm manager

• Consider use if custom farming or renting

• Take care of managing the asset – especially valuable for absentee owners

• Charge between 6-12% of the rental rate as their fee for management (less on straight cash rent, more on crop share rent agreements or custom farming)

• Depends on what you are asking them to do

• In some cases, the service is very worthwhile

• (Understand that most tenants won’t like this)


[email protected]

6

IF KEEPING

Types of Leases

Lease Types• Crop share

• Traditionally used (historically)

• It shares the production “risk” between tenant and landlord

• 30-70, 33-67, 40-60, 50-50 – typical split options used

• In typical 50-50 split: • Tenant covers cost of all field operations

• Tenant pays for 50% of seed, fertilizer, chemicals used

• Landlord pays for 50% of seed fertilizer and chemicals used

• Landlord pays for equipment (irrigation) and land maintenance/improvement, land taxes

• Landlord pays for appropriate share of crop insurance and will receive that coverage

• Usually most equitable for most parties


[email protected]

7

Lease Types

• Cash leases• Tenant takes most or all of the production “risk”

• Tenant pays all cost of inputs, field operations, etc.

• Tenant receives 100% of crop

• Landlord receives cash rent payment

• Landlord pays for equipment (irrigation) and land maintenance/improvement, land taxes

When prices are relatively stagnant, this works OK. When prices are volatile – one party is not treated equitably

Lease Types

• Flexible Cash leases• Flex on price, yield, or both (revenue)

• There is a shared production ‘risk’

• Most equitable tend to flex on revenue

• Typically set a base rent

• True flex will go up or down from the base reflecting the year

• Recommended to use caps or limit the flex – both up and down

• Questions? Ask – this is a workshop by itself!


[email protected]

8

Decision Tree

Lease Observations

• Flexible cash leases used 7-10% of the time in Eastern Nebraska

• Cash leasing is king in eastern 1/3 of state

• Southwest and panhandle – crop share is more common

40/60 common for dryland (rain-fed) leases

50/50 common for irrigated leases

Leases are one (typical) to 10 years (longer) in length


[email protected]

9

COMMUNICATIONS – BETWEEN LANDLORD AND TENANT

• When leases go awry, lack of communication is to blame 90% of the time

• When working with family – is the goal to still have a family?

• Don’t make that assumption, get the commitment

• Include all family members who need to be involved

COMMUNICATIONS

• Best way to communicate is to listen!

• “Seek first to understand, then to be understood”

• Ask clarifying questions

• Sometimes people say one thing, mean something different

• Prove to the other party that you’ve heard what they are saying


[email protected]

10

FOR THE TENANT (WHAT TO COMMUNICATE)

• Force yourself to share information with the landlord

• Yes – even for cash leases!

• Timely crop updates

• include moisture conditions

• weed/disease/insect pressures

• Consider sending as texts – or text with pictures

FOR THE LANDLORD (WHAT TO COMMUNICATE)

• Overall management of the farm (do you have vision or goals?)

• Specifically:

• Weed control

• Erosion control

• Non-crop acre management expectations

• If using farmstead, what is the expectation for managing that asset?


[email protected]

11

FOR BOTH (LANDLORDS AND TENANTS)

• Avoid feeling of having power over

• Landlords saying that the tenant has all the control over the lease

• Tenants saying that the landlords have all the control over the lease

• First communications about leasing farmland or pastures is not the price per acre or per pair

• What management skills does the tenant have?

• What are the expectations of the landlord?

DILEMMA OF YIELD MAPS, ETC….

Do you share yields? (cash rent)

What record?

Are yield maps drawn by GPS software shared?

Consider the rules of the doctor/patient relationship.

Will the same should apply to farmer/landlords?


[email protected]

12

Critical Issues• Hunting rights

• Allow or retain – must specify

• Stover• Allow harvest or retain

• If harvest, how often

• Will the rent increase with use?

• Grazing• Allow, when, how many, animal/fencing needs

• Easements• Do they exist and in what terms?

• Manure application• How often is that allowed?

• Limit P application

Passing that land asset on…….• Capital Gains might dictate when the land is passed

• Estate Tax rules changed and for most will not be a huge issue

• Some of the options for passing include through your will, a trust, an LLC, other corporation entity, etc….

• How you pass it on will depend on what you expect to have happen to the asset

• To family who will sell

• Next generation farmers

• Other


[email protected]

13

When planning for passing the assets

• Avoid unintended consequences

• Think about any “good” you want to do• Change the future of rural America

Fillable PDF Leases – AgLease101.org

Click Document

Library

Fillable PDF

Forms

Lease Publications


[email protected]

14

Summation

• Land ownership is rewarding – if you put in the work

• Know your investment and what you expect the investment to do for you

• Get help when you need it

• Get training – need to know what you don’t know

• Family communications can be challenging, but never ignored

• Have a plan in place to pass that asset effectively

THANKS FOR YOUR ATTENTION!

Allan VyhnalekExtension Educator, Farm Succession

303C Filley Hall, East CampusE-mail: [email protected]

Phone: 402-472-1771Website: http://agecon.unl.edu/succession

mailto:[email protected]

http://agecon.unl.edu/succession

so, you’ve inherited a farm, now what?•fee simple –you can dispose of the land anyway you wish...

Documents