These strategies are for farmers who have identified a family member to whom they wish to transfer the farming operation.

Determining when to transfer ownership of the operation can be answered different ways:

1. Gift and/or sell the farm today
   
2. Gift and/or sell the farm at retirement
3. Bequeath and/or sell the farm upon death

We recommend that you work closely with an estate-planning attorney to complete the basic planning for your client. Legal documents that may need to be completed include a will or revocable trust, power of attorney and a health care directive.

A lifetime transfer is a transaction to arrange a sale, gift of combination of both to a family member.

Bargain sale

A bargain sale is a strategy where the farmer sells the operation for a price lower than its fair market value.

For example, the senior farmer sells the operation to the junior farmer for $1 million, when its fair market value is $2 million. The Internal Revenue Service (IRS) will view this transaction as a sale of $1 million and a gift of $1 million. Many times, the sale price is paid as an installment sale using annual cash rents.

A Family limited partnership (FLP) is a strategy used to move wealth from one generation to another. Partners are either general partners (GP) or limited partners (LP).

One or more general partners are responsible for managing the FLP and its assets. Limited partners have an economic interest in the FLP but typically lack two rights: control and marketability.

• Limited partners have no ability to control, direct or otherwise influence the operations of the FLP. They can neither buy additional assets, nor sell existing assets, and they cannot act on the partnership’s behalf.
• Limited partners also substantially lack the ability to sell their interest, with one typical exception: transfers to immediate family members (spouse, siblings and direct lineal descendants and ascendants). Typically, FLPs are partnerships limited to family members.
• A discount can be placed on the value of the shares, resulting in a smaller gift.

For example, parent(s) set up an FLP and transfer farming operation assets into the partnership.

Then, parent(s) gift limited partnership interests to the children.

Death transfers can include transactions of sales or bequests.

Estate equalization

Estate equalization occurs when the business owner or farmer wants to treat his or her children fairly but maybe not equally.

Here, the owner bequeaths the land or business to a child who wishes to farm the land or continue the business. The rest of the assets then will be split among the other children. Since a large amount of the estate will go to the one child, the owner can equalize the estate by purchasing a life insurance policy and naming the remaining children as beneficiaries of the policy.

The family management strategy is where the farmer bequeaths the operation into a FLP at the time of death. The farmer can bequeath the entire operation to all children and name one child as a general partner of the operation. Each child will receive income from the operation, and the entire operation will pass from one generation to the next.

The advantages and concerns are the same as an FLP in lifetime transfer.

Family buy-sell arrangement

A family buy-sell arrangement consists of the farming child(ren) entering into a buy-sell agreement with the parents, which specifies that they will purchase the land or business upon the death of both parents. This buy-sell arrangement would be funded by the farming child(ren)’s purchase of a life insurance policy on their parents.