Aging brings a variety of challenges to individuals, but taking steps to make sure family farms are inherited by relatives is a task that sometimes gets overlooked.
Older Americans Month in May is a good time to consider land succession, which is how land ownership often passes from one generation to the next.
Bryon Parman, Mississippi State University Extension Service agricultural economist, said the average age of Mississippi farm owners is 60. This age mirrors the national average and has risen steadily in the last few years.
“This is not necessarily a problem,” Parman said. “People are working a lot longer than they used to and retiring later and later because they live longer. It would make sense that they’re hanging on to the land.”
Parman said converting farmland to another use is not in our best interest.
“There is a growing population worldwide and in the United States, and if you take land out of production, you have to do more with less. We’ve improved our yields and management practices so we’re getting so much more out of an acre of land than we did 50 years ago.
“But the more you reduce the percentage of crop-producing land, the more pressure it puts on every acre of farmland. That’s why genetically modified crops exist. If we went back to traditional farming, I don’t think we could produce enough. It’s important that land around population centers stays in production.”
The U.S. Department of Agriculture defines a farm as any agricultural operation where $1,000 or more of goods are produced and sold each year. While that definition includes a lot of very small enterprises, there are some really big family farms in Mississippi.
The number of family farms in the state remains relatively stable, with the majority of farms being owner-operated, including most of the large operations in Mississippi.
“It’s hard to track the rate at which a farm turns over to an heir rather than being sold outside the family, but family farm ownership is fairly robust.”
The last few decades reversed the trend of farms leaving family ownership when children took jobs outside the ag industry. “Historically, 20-30 years ago and beyond, most kids were leaving the farm because there were better paying jobs in the cities and elsewhere off farm,” Parman said. “In the last 10 years, with the income farms have been able to generate, a lot of kids are giving it a second look.”
The baby boomers make up the largest generation in U.S. history, and they have begun turning jobs and land ownership over to their descendants. “What you’re seeing is some of the children of these farmers considering going back to farming.”
As a land-grant institution and a national leader in agricultural research, MSU educates a number of students each year who are headed back to run the family farm.
For the 2014-2015 academic year, MSU awarded 417 agriculture and life sciences degrees and 101 forest resources degrees. Another 737 graduates received business degrees. Each of these majors has graduates who take jobs in agriculture, including those on family farms.
Although interest in returning to the family farm continues to grow, land transfer has significant tax implications. “Estate taxes can be significant. Everything below approximately $5.5 million is tax free, but above that is taxed at 40 percent or more. In the Delta, farmland has a market value of about $4,000 an acre. Estate taxes on a 3,000-acre farm would be about $2.6 million.”
Although there are some programs that allow an heir to pay off the tax bill over several years, there usually are other costs associated with an inheritance of land.
“If you have a brother and sister, you may have to buy them out,” Parman said. “Some people choose to sell off a portion of the land to pay these costs when inheriting land.”
Wayne Ebelhar, research professor and agronomist at the Delta Research and Extension Center in Stoneville, said it is vitally important that families have good estate plans in place before they expect them to be needed. “In my family, my father and my uncle, who were partners, set up trusts where the children do not inherit but actually split the original shares in the limited liability corporation that owned the family land. My dad was determined that the land would not have to be sold to pay inheritance taxes.
“Dad worked his whole life on the farm and did not want the government to get the farm, so to speak. The farm passes to surviving spouses upon death, but moving to children is a whole different story. In our family, dad and mom had a plan.”