Dear Michael:

We just entered into a large contract for deed with someone for some land we have been farming for decades. We’ve probably already paid for it twice, but now we’re doing it a third time, to be sure. We have a son who’s been farming with us, but there is no way he can afford the payments on this contract for deed. We are in our sixties and we have the luxury of not having to pay the cost of living that younger people do.

However, this isn’t helping my son get any further ahead. What should we consider?

– C4Dumb

Dear C4Dumb: It’s hard to “read the label when you are inside the bottle.” I’m sure you had the money for the down payment your son didn’t, and so you put the contract in your name.

However, continuing to build your estate is just going to lead to bigger problems for your farming son one day, if he has to either buy a share of this purchase back, become suddenly responsible for it, or get castigated by his siblings for having received it “for no reason”. Let’s look at some out of the box ideas in your case.

You said your son couldn’t afford the down payment or the payments, but what can he afford? If he were to farm this land in his name, what kind of income could he produce?

Normally, if this is all he has, he’s not going to have enough income. But he can do a part of it, probably. One, there’s no law that says you have to sell it to him for what you paid for it. If you give him a decent cash flow price and a minimum interest rate (currently, 3% for over five years), just about anybody could swing some portion of this land you bought. It’s good land to sell because it has the highest basis of all the land you own – likely – and won’t cause any capital gains problems.

If you would set up a ‘secondary’ Contract for Deed with him, keep in mind that lenders will use this as a part of his overall debt in determining other loans he may need from the bank. But if the price is right and the banks can see a favorable equity position, he shouldn’t have a problem.

The good thing here is if he fails to make the payments, you can continue on with the original buyer and own the land yourself. If he makes the payments for all or a portion, once you’re paid off, the original owner can transfer the deed to you and you can turn around and transfer it to your son.

Another option: What about if he rents the land from you, but you agree that all rents paid by him on this property – or all your property for that matter – go towards the eventual equity your son will have in your farm and ranch operation?

This goes a long way when it comes to settling the estate and when the other children find your son has an equity position in your farm that they may not like, although you made the deal with your farming son years ago. You’ll just have to put in your will something like “in lieu of contract for deed payments I declare the sum of all rents paid by Jr. will result in him owning this share of the property.” I’ve seen that done before.

To mitigate any future disasters, you might also put something along the line of “If Jr should sell this land and not continue a career in farming/ranching for ten years after my death, or until he is age fifty-five, then he shall share the proceeds of said land with his siblings.”

That way the other kids understand that Jr. won’t walk away with a bunch of land worth a bunch of money that doesn’t cash flow half the years you own it.

Those are just a couple ideas of how to grow your son’s estate rather than making your estate more valuable and more complicated when you die.