Gifting Family Farm

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Oak&Elm
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Gifting Family Farm

Post by Oak&Elm » Wed Apr 04, 2018 4:36 pm

My FIL is getting near the end of his journey and would like to sell/give his 120 acre farm to his 3 daughters. Without going into all the details is this even possible? His tentative plan is to sell them the farm at fair market value and than gift the money back to them at $15k/yr over the next few years. (Not sure he has a few years left, poor health) Thankfully he’s going to see an estate lawyer next month, I just want to help him with some advice. Any help would be greatly appreciated. The estimated value of his property is 400-600k, the MIL/wife is still alive and will likely outlive him but they keep their finances totally separate.
Last edited by Oak&Elm on Wed Apr 04, 2018 4:40 pm, edited 1 time in total.

barnaclebob
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Re: Gifting Family Farm

Post by barnaclebob » Wed Apr 04, 2018 4:39 pm

Why not just pass it to them when he dies so they get a step up in basis to FMV then. At least thats how most assets work when inheriting them, not sure if farms have special rules.

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Oak&Elm
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Re: Gifting Family Farm

Post by Oak&Elm » Wed Apr 04, 2018 4:42 pm

I know he fears losing the farm to a nursing home but I don’t think there is any way around it, if you have the resources you will pay for your own care.

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CAsage
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Re: Gifting Family Farm

Post by CAsage » Wed Apr 04, 2018 7:30 pm

The step up basis is invaluable on a long-held asset. Do the daughters all want to hold it? Or sell it? Either way, getting to reset their cost basis to current fair market value is very valuable. Look into ways to pass the property easily (either a TOD or a trust) and find some other way to fund expenses....
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not4me
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Re: Gifting Family Farm

Post by not4me » Thu Apr 05, 2018 1:54 pm

OP, sorry to hear about the difficult time ahead for your wife & her father. It is good to hear he is willing to talk with a lawyer & that is indeed the best course of action. What you laid out as his plan doesn't seem right, but really more detail is needed. A few thoughts in case this can spur some other thoughts....

If he did sell it to his 3 daughters at fair market value, it would have the effect of setting the cost basis to current FMV. Of course, all 3 would have to have the cash to buy it & willingness to do so. If $450k was indeed appropriate (& it would be important to make sure it was fair value), then it would take him 10 years to gift the money back (since his wife's $ is separate)....5 if he gifted son-in-laws also.

Is the farm also his primary residence? If so, I believe in some states that it couldn't be taken by a nursing home...but cash could (if he sold it). Does he have other debts? If he does, then as his estate is settled the farm might have to be sold to satisfy those other debts -- is that part of what he's trying to avoid? Does he have a will? Is it a community property state? Are there other family members who might be wanting it (such as a brother, nephew, etc)? Is the farm currently being worked by someone other than him? & is it self-sustaining? Any long term leases, covenants, etc on the land?

If asset protection is the overriding concern, a trust might be an option to consider. There is of course expense associated with that & he'd have to decide if worth it. He should also go ahead & make provision for power of attorney & health care power of attorney in case that becomes necessary before the will.

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Re: Gifting Family Farm

Post by Oak&Elm » Fri Apr 06, 2018 11:48 am

Thanks not4me,
This is his primary residence and he does already have a trust in place but my BIL died a year ago and this has prompted him to redo his trust. The 3 surviving daughters are willing to purchase the property and let their mom live out her life there. I was surprised to find out the property was held only by my FIL, they have been married 60 years so I assume this was some sort of oversight in not having the MIL as joint tenant. The other main concern to me is there are 4 deeds to different sections of the property, some purchased some inherited which makes it even more complicated. This all just recently came up and we are finding out more details weekly. I appreciate the response and will follow up when I have more details.

RetiredCSProf
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Re: Gifting Family Farm

Post by RetiredCSProf » Fri Apr 06, 2018 12:09 pm

The unified credit enables you to give away $5 million (plus the annual inflation adjustments) during your lifetime without having to pay gift tax. By using the unified credit during your life, you'll reduce the amount available to offset the estate tax upon your death.
Your FIL can simply gift the property to his three daughters during his lifetime. He will likely need to sign a Quit Claim on the property and the daughters will need to sign a new deed. The estate atty can draw up the paperwork.

Edited to add this: You may need to get a written appraisal of the property to set the FMV at the time of gifting.

OTOH, in most cases, it makes more sense for heirs to inherit the property. My sister insisted that my Mom gift the family farm to her three heirs several months before she passed away. My sister's reasoning was that my Mom's estate would exceed the unified credit. This was during the taxmageddon year when my sister was convinced that the unified credit would drop to $1M, when instead, it increased to $5M.

We are in the process of selling the family farm. The cost basis is about $35K. The purchase price is $900K. Capital gains will take at least 1/3 of my proceeds when/if the sale goes through. I'm in California, where capital gains is treated as ordinary income.
Last edited by RetiredCSProf on Fri Apr 06, 2018 12:16 pm, edited 1 time in total.

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Re: Gifting Family Farm

Post by dm200 » Fri Apr 06, 2018 12:09 pm

Oak&Elm wrote:
Fri Apr 06, 2018 11:48 am
Thanks not4me,
This is his primary residence and he does already have a trust in place but my BIL died a year ago and this has prompted him to redo his trust. The 3 surviving daughters are willing to purchase the property and let their mom live out her life there. I was surprised to find out the property was held only by my FIL, they have been married 60 years so I assume this was some sort of oversight in not having the MIL as joint tenant. The other main concern to me is there are 4 deeds to different sections of the property, some purchased some inherited which makes it even more complicated. This all just recently came up and we are finding out more details weekly. I appreciate the response and will follow up when I have more details.
How important is the sale of the farm? In other words, can the farm be used or rented, etc for the near term number of years?

I would, not, work on getting the deed(s) leared up.

Perhaps, as well, the actual home/house could be separated from the farmland - and that could allow them (either or both) to live there indefinitely.

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BL
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Re: Gifting Family Farm

Post by BL » Fri Apr 06, 2018 12:18 pm

Perhaps a Life Estate would work for the mother having a place to live. IIRC, that is inherited with step-up, which I didn't know in the past.

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dm200
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Re: Gifting Family Farm

Post by dm200 » Fri Apr 06, 2018 12:41 pm

BL wrote:
Fri Apr 06, 2018 12:18 pm
Perhaps a Life Estate would work for the mother having a place to live. IIRC, that is inherited with step-up, which I didn't know in the past.
Maybe. However, separating the house and having her own it outright might be the best. I suggest full investigating.

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Re: Gifting Family Farm

Post by RetiredCSProf » Fri Apr 06, 2018 1:43 pm

Your FIL may have intentionally placed the property in his name only, with the assumption that he would pre-decease your MIL, and that she would then get the full stepped-up basis on the property when he passes.

Also, you said that there are four separate parcels of land. My parents had the same situation and this is how they handled it: two parcels in my Dad's name only and two in my Mom's name only. The parcel with the house was in my Dad's name -- he assumed that he would want to continue living in the farmhouse if my Mom pre-deceased him, but he would want to sell the two parcels held in my Mom's name. My Dad passed away first. Mom sold the farmhouse soon after, getting a stepped-up basis on the property.

Your parents can still gift $15K (actually $30K) annually to each of their daughters without affecting the unified credit limit.

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Re: Gifting Family Farm

Post by NotWhoYouThink » Fri Apr 06, 2018 1:49 pm

Do the siblings even want the farm and house? Or maybe that's a difficult subject to discuss. But if their plan would be to sell it after both parents have died it may not make sense to come up with a complicated scheme to transfer it sooner. Maybe Medicaid planning is involved here, but the states are pretty good at doing the look-backs, so don't count on being able to save anything if the need for care is near.

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Re: Gifting Family Farm

Post by Oak&Elm » Fri Apr 06, 2018 3:44 pm

To respond to notwhoyouthink,
I think the daughters are somewhat neutral on holding the property. The home was basically built in the center of the property so it makes it difficult to keep the home and sell off sections of the property. Not really sure what all is involved with co-owning a farm. As for renting the land there isn’t much tillable acreage, this is more hilly and wooded, a neighbor rents his land out to hunters. I would agree that this would not go unnoticed by the state of Missouri if there was any kind of look back into his finances.

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dm200
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Re: Gifting Family Farm

Post by dm200 » Sat Apr 07, 2018 9:29 am

Oak&Elm wrote:
Fri Apr 06, 2018 3:44 pm
To respond to notwhoyouthink,
I think the daughters are somewhat neutral on holding the property. The home was basically built in the center of the property so it makes it difficult to keep the home and sell off sections of the property. Not really sure what all is involved with co-owning a farm. As for renting the land there isn’t much tillable acreage, this is more hilly and wooded, a neighbor rents his land out to hunters. I would agree that this would not go unnoticed by the state of Missouri if there was any kind of look back into his finances.
Grew up on a small farm, so I have some knowledge.

Such joint ownership would almost certainly be a mess (or worse). Get the title(s) clarified - not necessarily changed - so that future disposition can be cleaner.

Life estate can become a huge mess down the road. Look for some kind of ownership that will give her ownership for as long as she needs to live there.

More and more, over the decades, a house and farm together are not what modern farming is about. Investigate what the farming economy is like there. Too bad the house is in the middle. Maybe carve out a few acres to make available eventually to someone who whats a home and a few acres.

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Re: Gifting Family Farm

Post by hudson » Sat Apr 07, 2018 2:29 pm

Oak&Elm wrote:
Wed Apr 04, 2018 4:36 pm
My FIL is getting near the end of his journey and would like to sell/give his 120 acre farm to his 3 daughters. Without going into all the details is this even possible? His tentative plan is to sell them the farm at fair market value and than gift the money back to them at $15k/yr over the next few years. (Not sure he has a few years left, poor health) Thankfully he’s going to see an estate lawyer next month, I just want to help him with some advice. Any help would be greatly appreciated. The estimated value of his property is 400-600k, the MIL/wife is still alive and will likely outlive him but they keep their finances totally separate.
Your FIL is going to an estate lawyer; that would work for me. I wouldn't give any advice unless asked.

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