You've inherited farmland. What's next?
Meta description: There are many factors to consider after you have inherited farmland, including land value, income location, taxes and what to do next.
Inheriting a farm can be a welcome opportunity or an intimidating challenge, depending on who you are and the situation you find yourself in.
For some people, this inheritance may have been expected, an eventuality that was planned and prepared for years in advance. However, for others, it may not have been so well planned out. In fact, there may be some considerable amount of confusion as to what should happen next.
For these folks, inheriting farmland can be a daunting experience to suddenly have to deal with. Let’s be honest, even those who knew the inheritance was coming down the road at some point may not be entirely certain what’s next, either.
So, with all that in mind, here is what you need to know about inheriting farmland and how to plan ahead for next steps that will work out best for you, your goals and your life situation.
Evaluate the land first
Once the inheritance of farmland is official, your first step – no matter the other circumstances – should be to evaluate the land. According to Iowa State University Extension and Outreach, you will need to evaluate numerous factors regarding the land, including location, income, value and taxes.
As for location, this is what will likely be the primary factor in determining the best future use for the land – and that will inform the inheritor’s next step. For example, it may be better for the land to be sold to a neighboring farmer or a developer. On the other hand, if it is highly productive, then it may be best for the person (or persons) inheriting the land to either farm it themselves or lease the land to a tenant farmer.
After location, the next most important factor is the income that the land provides or its potential for future income. To determine these, you must look at how the land is currently used and how it could be used in the future.
Now, many people who have inherited land may have records that make the land’s current income apparent, but determining what the land’s potential income could be is a much harder calculation to make. You may want to consult a farm manager or other agricultural advisor to help make this determination.
Leases currently active on the land, zoning regulations and easements could have a say in future income potential, too, so be sure to put time into determining each contributing aspecit in this area.
How do you best determine the full and accurate value of farmland? You get a certified appraisal of the land. At least, that’s if you want the most accurate dollar figure at the end of the process.
The true value of the land doesn’t just take into consideration the land itself, either. This will include any buildings on the property (especially dwellings), land improvements completed on the property and, of course, other sentimental factors that may influence value.
Finally, taxes have to always be considered when inheriting farmland. These will likely be both state and federal estate and inheritance taxes. The amount of taxes that might be owed on the land will take into consideration several factors, including the size of the estate, how much the land and assets were either owned or leased, the relationship of those who inherited the land to previous owners and how the property is handled.
Consider how the land was inherited second
After you have reviewed those four factors, the next step is to put thought into how the land was inherited. In some cases, the land may be inherited by an individual, but in many other situations, the land is actually inherited jointly by multiple people. For example, a farmer may leave land to a number of children rather than just one.
If the person who has inherited the land is now the sole owner, then their decisions become a little easier. Meanwhile, siblings who may have jointly inherited land now must decide, while taking into consideration their own goals, how to move forward with their inheritance. In these cases, open and transparent communication is vital to making sure everyone’s voices are heard.
Now what? Here are your options
Whether you have inherited the farmland alone or with siblings or other people, you must eventually decide what to do next.
In general, your options are to operate the land, lease the land to a tenant farmer or sell the land. The best fit for you will certainly depend on your agricultural experience and the time available to devote to both operations and decisions regarding the land’s future use.
It’s not uncommon for those who have inherited ownership of the land to already be involved in its operation in one way or another. However, it’s also very common for the new owners to have not been involved in the agricultural aspect. Again, how to proceed will come down to experience, time available and the best route forward with future goals in mind.
There is a third option that may be viable for some families, which is to either buy land from other inheritors or set up a family farm trust moving forward.
Always have a plan in place
Inheriting land always involves a fire hose of information that needs to be taken in and understood, sometimes rather quickly. At the end of the process, though, there always needs to be a solid plan put in place on how to move forward. Whether this plan involves more than one person, again, depends on each situation.
Getting on the same page with that plan is essential and may require bringing in other outside advisors, including even mediators or arbitrators, to try to achieve the best results possible for all involved.
Cotton Grave can help navigate next steps
If you find yourself in a situation where you have inherited farmland or anticipate inheriting land in the future, then do yourself a favor and begin conversations ahead of time.
One of the conversations that may prove beneficial is with an experienced farm management provider, such as Cotton Grave. We would be happy to discuss your situation and next steps forward following an inheritance. With our experience, you will have a trusted voice in what can often be a high-pressure situation.
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