We've had a son farming with us for the past fourteen years. When he started, our operation total didn't amount to a million dollars, but that was a big farm back then.
Since he started working with us, we've added more land, we've added more machinery and our operation is now close to four million dollars. We didn't pay our son much when he started, but now he owns some of his own land and equipment and he's getting close to a million dollars net worth. Imagine being thirty-five years old and worth that kind of money already? It makes your head swim.
Our problem is we are trying to do an estate plan and trying to decide how much should go to him and how much should go to our other four children without causing a lot of bad feelings. We've already heard other kids saying "I'll never be worth as much as him [the farming son] no matter how long I live" so we know things will get a little contentious when we die.
Is there a place where we can turn to figure out what the value of having our son come back and farm with us has been to us – and what he should be rewarded for doing? We'd like something to show our other children so they can understand what he has meant towards making our farm grow in size and scope? –Signed, 'Looking For Answers'
Dear Looking For Answers:
As you can imagine, I get asked this question a lot.
Over the years, I've struggled with an answer to this question and how to go about quantifying exactly what it meant to you and your estate to have your child come back and work with you.
In many cases, the child coming back allowed you to expand your operation by adding more land, or by purchasing more equipment. In some cases, the child coming back has come back with education and technology expertise that has allowed you to make more profit per acre – thereby helping you pay for these purchases in a shorter time span.
If it hadn't been for the farming child, your estate wouldn't be the size it is today and his/her contributions should be recognized when dividing the estate.
On the other hand, there are children who've come back to the farm who are worth more than their parents are now. No one believes they started from scratch and got to this net worth without Dad and Mom helping on one way or another. This might be helping with down payments, free use of machinery, or small loans on the side or even just helping with the labor involved – although most of the time we find this is just a trade-off on labor on the home place. Whatever the case, most kids don't get out of college and become worth a million dollars within fifteen years. Your other non-farm children will never be worth this amount.
So, somewhere betwixt and between lies the answer, yes?
As I thought about this, I decided the best method for helping farmers help themselves is to do a self-help booklet at home that helps them decide what the farming child has coming and what should go to the non-farming child(ren).
The booklet is fairly easy to work with. It starts with the assets you had when before your farming child came on board. You'll have to remember what acres you had, what the value of the machinery you had back then (best guess) and what other values you had in your business. You would use the value of the acres today of the acres you had back then, as one might think that you would still have these acres whether or not your farming child came back or not.
On the other hand, there is a little section there that states 'You know, our farming child helped us produce more on those acres and he deserves some piece of the original farm, as well'. That's up to you.
The second part gets into how you've expanded from the time Jr. came back to the farm. For some of you, you never would have added those acres if you didn't Jr.'s cheap labor to make the payments on that land, or you wouldn't have had the technology, or whatever reason that Jr. added to the farming business that allowed you to add those additional values.
This might be land, it might be machinery, it might be putting up buildings or storage sheds, granaries, putting in tiling, fencing, etc. etc.
Next is the subjective part. We take the number of years that Jr. has been working with you on the farm and multiply it by a factor you feel is fair.
For example, in your case, Jr. has been there fourteen years and he should get three percent of the total value per year he worked there. In this case, we'd take the three percent times fourteen years to get forty-two percent assets to go to Jr. of assets added since s/he came on board. That's his or hers – s/he earned this share for all of the above reasons.
Now we've got a number to work with. Something you can look at and see and show to your other children and explain why you feel he's earned this portion of the farm assets.
There is a following section that might subtract from this number. This section states Jr'.s assets are worth X amount and you helped him by loaning him money, machinery, or other aid in order for him to acquire these assets. Some parents will put fifty percent, and other parents will put five percent or nothing at all.
This number is then subtracted from the total value Jr. has earned from your farm due to your helping him – unless, of course, you helped the other children just as much through their lives. Then it's a moot point.
In any case, I'll try and explain more about this booklet in further issues.
It's not hard, but it helps to have it explained to you. If you'd like a copy, please call 800-373-4078 or send me an email at [email protected] and we'll either send you a copy or email you a copy. Once you have that in your hand, you can go about the business of what's fair and what's equitable to everyone – farming and non-farming children.