Commentary: Lending a hand--when it's time to hand down the family farm

Issue Date: June 7, 2006

By Tod Kimmelshue

There are ways to protect your family farm and your family business, but it doesn't happen by accident. As a banker and a farmer, I've seen families stick their heads in the sand when it comes to sensitive issues like estate and succession planning. But without a plan for the future, they're often forced to sell off part of their assets to raise capital simply to continue their life's work.

That's why, starting this week, Ag Alert® brings you a dynamic, four-part series on "Handing Down the Family Farm." This series will introduce you to some fascinating California farm families and their thoughts and actions on this vital subject. It will also provide you with expert insights from lawyers, accountants, economists, bankers, professors, authors and consultants. Together, these experts and the featured families will offer an unprecedented look at the future of estate and succession planning in California agriculture.

In some cases these families have suffered significant setbacks. In others they've had to make hard decisions or blaze new trails. In every case, however, there's a love of family and a respect for the land that underscores the importance of what California's family farmers have at stake.

We all know firsthand families that did little or no estate planning and ended up with a huge tax bill and no cash to pay it. I've worked with families whose means were modest, but who maximized opportunities through good planning. And, I know from experience that the best-laid plans of mice and men sometime go awry. That's no excuse for not planning to keep the $1.5 trillion in U.S. farm assets at work for the families who own those assets and the Americans who depend on the food and fiber they produce.

A lack of cash for death taxes can push a family into remortgaging their ranch to pay for everything over again. One family I worked with had just paid off a 20-year loan used to cover their death tax obligation. Now senior family members are at retirement age and haven't done the estate and succession planning they should have. As a result, they'll pass on a legacy of debt and uncertainty to their children and grandchildren, and the next generation of owners will be forced to sell off more land or take on more debt and continue to struggle in an increasingly demanding business environment. Eventually the family will most likely throw in the towel and sell--not just the real estate, but also the family's history and pride.

While these situations aren't uncommon, they're to a large extent avoidable. Historically farmers are land rich and cash poor--and in California this is true in the extreme. Skyrocketing real estate values, urban pressures, burdensome regulations and an increasingly competitive global market make passing on the family farm ever more complex. Added to that are uncertainties in the death tax laws, which will decrease through 2010. Additionally, if Congress doesn't abolish the current sunset provision, the 2000 estate tax laws will spring back to life in 2011.

Farm Bureau and many other business organizations have been advocating for the repeal of the death tax for years and will continue to do so until this unfair, unnecessary and crippling tax is removed.

Our "Handing Down the Family Farm" series, however, is about more than tax laws, balance sheets and emerging business models. It's about protecting California family farms and those who have made it their life's work to operate them.

We hope you will enjoy meeting the California farm families that have opened their homes and their hearts to help with this ambitious editorial project. And, we hope the "Handing Down the Family Farm" series will prompt family discussions and spur development of your own estate and succession plans to help future generations of California farmers succeed.

(Tod Kimmelshue is regional vice president of Northern California Farm Credit and a member of California Farm Bureau Federation's board of directors and its Finance Committee. He may be contacted at Tod.Kimmelshue@norcalfc.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item. Top