Transition the Farm Using Profit Interest as a Planning Tool
Let your children earn ownership of the farm through sweat equity
By Rod Mauszycki, Principal, Agribusiness and Cooperatives, CliftonLarsonAllen Wealth Advisors, LLC
Many growers have worked hard for everything they have, so they like the idea of their children earning the farm while providing a tax-efficient way to transfer it to the next generation.
When I meet a client, one of my first questions is, “How many more years do you want to work?” Typically, the answer is a few years, but on occasion I have a client who indicates a longer transition out of farming.
As someone who helps farmers transition to the next generation, my eyes light up. It is no secret that the more time you can allow to transition, the more options are available.
Time is money … and flexibility. Time provides you with the opportunity to think through your upcoming transition and potentially fix past financial sins that might burden your children.
For example, I’m meeting with a client today about a transition plan. Unfortunately, the partnership has a substantial negative capital account, so right now the client could not gift (or part sale/part gift) the partnership to the children.
Given some time, the client could work through the negative capital account and allow a more tax-efficient transfer to the next generation. And as we work through the issue, there is something we can do to immediately to start the transition, and that’s to give the children a profit interest.