Estate planning with farm inflation

With inflation, how do we adjust what sweat equity on a farm is worth? I used to see people attempt to calculate those numbers, but I don't see how they keep up with inflation. It seems like all four of our children are getting a huge amount of value from our estate: They will all receive well over $1 million from the farm, investments, and life insurance.

However, on paper it looks like some are winning and some are losing. One of our sons has been working with us and helping our farm grow for more than 30 years. He is getting our 600 acres. We feel it must be that way to accomplish our goals and minimize future conflicts. Can you help me feel good about my plan?

- Submitted by email from B.P.

Solution:

To answer your questions, we need to define winning and losing. I will start with a story that may help.

I was driving home after taking one of my children to the airport on a cold, snowy day. I had the radio on for storm updates.

A news story came on about two lucky people each winning the $1 million New Year's Day lottery prize for their state. The news outlets were excited to let everyone know. A couple of things flashed through my mind. The first thought was, You must play to win. I don't play the lottery, so I had no illusions of winning.

The second thought was that there would be a lot of taxes to pay. I am guessing the winners would maybe net $600,000. Then I started thinking how crazy it would be if the two people who won were related. That would be a great story.

Then, B.P., I thought about an answer to your question. Your goal was to keep the farm together, so you did what you thought was best by directing the farm to your farming heir. Then you also did what you thought was best by giving your other children non-farm assets and life insurance in excess of $1 million each.

At the time you did that, it seemed "close enough" to be fair, but now the gap is widening because your land has really inflated in value.

So, let me ask you: Who is buying the lottery tickets for your farm? That is not a trick question.

Your farming heir has been buying lottery tickets for the past 30 years, both with sweat and risk.

The next question is: Who is winning "well over $1 mil-lion" without ever buying a ticket? Could you imagine the news story on the radio telling people the winner of the lottery never actually bought a ticket? Ticket buyers would be upset!

On your farm, someday there will be four related winners on the same day and there will not be any tax on what they receive. Epic story.

So, let's define what you call "winners" and "losers."

Is someone who is getting well over $1 million without ever buying a ticket now considered a loser in your estate plan?

Someday your estate will have four winners who should not complain.

Yes, you get to determine how much each will get, but the three non-farming beneficiaries of your assets each get to determine their own happiness, knowing they never bought a farm lottery ticket.

If they aren't happy with "well over $1 million," that might be their problem, not yours.

As you mentioned, your farmland has grown in value over the years, but what about your son's sweat equity? Maybe you should consider inflation as far as it relates to his time and hard work as well.

Then again, does the value of the land make a difference if it is never sold?