Soybean Harvest

The following information is provided by Nationwide, the No. 1 farm and ranch insurer in the U.S.*

Farm transition planning isn’t something many farm families want to discuss. The process that creates a blueprint for a farm’s future is often an emotionally charged issue, especially when family farmers face the challenges of relinquishing control to the next generation.

Some farm families use a gifting strategy to pass on assets. Gifting can have massive tax implications, especially when tax laws seem to change every few years. Financial, tax and legal professionals should be consulted prior to gifting assets as a part of your transition strategy, but families can begin by considering several pros and cons to this transfer method.

Pro No. 1: Future estate taxes could be lessened

While holding off on gifting assets like land or equipment until death currently helps cut out capital gains taxes from an intergenerational transfer, the estate tax can create its own challenges, especially given that the current $11.7 million exemption for 2021 is slated to revert to an amount roughly half that in 2026. (Source) For large farm estates, gifting some assets now may help ease the overall tax burden of both parties involved in the process.

Con No. 1: Step-up in basis does not apply

Many farmers have an incentive to hold on to highly-appreciated assets like farmland because of the step-up in basis that occurs at death. If land or equipment are gifted during one’s lifetime, the same doesn’t apply, and that could lead to tax issues down the road.

“A party receiving gifted assets during life will not receive a step-up in basis. The cost basis in assets that are gifted carries over to the new party. This could result in large capital gain taxes for some items sold by the recipient,” said Ryan Patton, JD, MBA, of Nationwide’s Advanced Consulting Group. “If the gift is made to the receiving party after the death of the owner, the basis in that asset is reset based on the executor’s assessment of its current fair market value. This step-up in basis allows the receiving party to now sell that asset potentially free from capital gains tax.”

Pro No. 2: Successor’s borrowing capacity could increase

Most farmers rely on loans to cover operating expenses and capital improvements to their operations. And a farmer’s ability to secure those loans may be improved after taking ownership of recently gifted farm assets.

“Farming is a capital-heavy venture, generally requiring loans on a yearly basis for operations. For a farmer, this may mean using your farmland as collateral for a loan. These operating loans may be challenging to receive if that farmer does not have collateral to secure the loan,” Patton said.

Con No. 2: Loss of control by the senior generation

Not all farm transitions are smooth. Some may involve conflict and tension when the next generation makes management decisions the senior generation may not agree with.

“When an asset is gifted, it is no longer in the senior farmer’s control. It’s important to consider how family friction could impact the farm’s financial success.” Patton said.

With so many variables surrounding gifting assets during a farm transition, no two operations will go through the same process. Before considering a gifting strategy, consider its impacts with help from qualified professionals.

Get connected to professionals  that can help answer your transition planning questions at Nationwide.com/YourLand.

*A.M. Best Market Share Report 2019. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2021 Nationwide. NFW-10169AO
Labor has always been an issue, mainly because we are a seasonal operation. So that's a challenge finding somebody who only wants to work three months out of a year, sometimes up to six months.
Mandy Way's avatar
Mandy Way

Way Farms

Farm Labor Resources
I appreciate the benefit of having a strong voice in my corner. The extras that are included in membership are wonderful, but I'm a member because of the positive impact to my local and state agricultural communities.
Ernie Welch's avatar
Ernie Welch

Van Wert County Farm Bureau

Strong communities
I see the value and need to be engaged in the community I live in, to be a part of the decision-making process and to volunteer with organizations that help make our community better.
Matt Aultman's avatar
Matt Aultman

Darke County Farm Bureau

Leadership development
Farm Bureau involvement has taught me how to grow my professional and leadership experience outside of the workforce and how to do that in a community-centric way.
Jaclyn De Candio's avatar
Jaclyn De Candio

Clark County Farm Bureau

Young Ag Professionals program
With not growing up on a farm, I’d say I was a late bloomer to agriculture. I feel so fortunate that I found the agriculture industry. There are so many opportunities for growth.
Jenna Gregorich's avatar
Jenna Gregorich

Coshocton County Farm Bureau

Growing our Generation
Knowing that horticulture is under the agriculture umbrella and having Farm Bureau supporting horticulture like it does the rest of ag is very important.
Jared Hughes's avatar
Jared Hughes

Groovy Plants Ranch

Groovy Plants Ranch
If it wasn't for Farm Bureau, I personally, along with many others, would not have had the opportunity to meet with our representatives face to face in Washington.
Austin Heil's avatar
Austin Heil

Hardin County Farm Bureau

Washington, D.C. Leadership Experience
So many of the issues that OFBF and its members are advocating for are important to all Ohioans. I look at OFBF as an agricultural watchdog advocating for farmers and rural communities across Ohio.
Mary Smallsreed's avatar
Mary Smallsreed

Trumbull County Farm Bureau

Advocacy
Suggested Tags: