A3O-Lancaster Farming, Saturday, December 20, 2003
RFAI FTATF
TRANSFER CHECKLIST
Roland P. Freund
Regional Farm Management
Agent
Penn State Cooperative
Extension
Real estate ownership is im
portant for every type of busi
ness, but it is most important for
farmers because the land is the
primary unit of agricultural pro
duction.
Farmers aspire to own land,
but every farmer will expire and
then own no land. So transferring
real estate, planned or un
planned, is a periodically recur
ring event in a farm family’s life.
Whether we are transferring
into our ownership or out from
us to others, there are some
things we need to think about in
the process. The list discussed
here will not be complete, but it
may. I hope, help you to think
about some important issues as
you plan for changes in real es
tate ownership.
How You View Real Estate
To some, land may be nothing
more than a place to grow crops
until it can be sold to the highest
bidder. Others might view it as a
heritage which has
been in the family for
centuries that should
be passed on to the
next generation ot the
family lineage.
Perhaps some view
it as something they
hold in sacred trust to
cultivate as good stew
ards and preserve for
the long-term benefit
of all of humanity.
Each viewpoint will
have a big impact
upon how individuals
will acquire and dis
pose of their real prop
erty, and how they will
care for it while it is in
their possession
Valuation
A business should
place a value on every
deeded property every
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year for the purpose of analysis.
The accountant needs to be
tracking “cost basis” annually.
This is also called “Tax Basis” or
“Basis.” It is what is reported to
the IRS as the cost of a capital
asset plus cost of improvements
minus depreciation claimed. The
accountant may also periodically
update the fair market valuation
of the property. The dollar values
so derived may not be adequate
to arrive at an asking or selling
price in a potential real estate
transfer.
A fair market value (FMV) for
a property can only be estab
lished definitively when a willing
buyer with money in hand makes
a genuine offer for that particular
tract. Appraisers will look at
“comparable sales” in the same
locality, adjusting for differences
between those and the subject
property, to arrive at their esti
mate of the FMV. Lending agen
cies will do their own appraisal to
ensure that they have sufficient
collateral to protect their loan.
Buyers should be particularly
cautious, because the asking
price is not necessarily the FMV.
Evaluate the soil classes and
types, the crop production poten-
We do the work.
You get paid.
CREP - the Farm Service Agency s
Conservation Reserve Enhancement
Program - pays agricultural landowners
rental fees to convert acreage from
crops to conservation features, such as
forested stream buffers, wildlife food
plots, and filter strips.
Land Studies, Inc. provides and installs
native trees and shrubs at no cost to you l
Earn money and help improve water
quality, wildlife habitat, and erosion
control on your land. Sign up for CREP.
“S? Land Studies
315 North Street
(717)627-4440 I Uitz PA 1 7541
Someone has the
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tial, and the water-holding ca
pacity of the soils. All this in
formation is available from the
Natural Resource Conservation
Service in each county.
Farm buildings and structures
may be an asset, but obsolete
technology and antiquated struc
tures are more likely to be a lia
bility and should be valued
accordingly. Livestock or poultry
housing should be carefully ex
amined by an agricultural engi
neer or a production specialist to
determine what the remaining
useful life might be. Also have
them prepare an estimate of re
pairs and upgrades necessary to
operate it commercially for that
remaining life.
Both buyer and seller must al
locate the total sale price for a
farm between business structures
and improvements farm resi
dence, and land. The tax treat
ment of each of these is different,
so it is important that at the time
of transfer a new “Tax Basis’’ is
established for each class of prop
erty. IRS auditors will see flags if
there is a significant difference
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Liability
Farm real estate ownership
can also bring liability for things
that happened years ago. Explore
the history of the property care
fully, lest some day you find that
your farm is a toxic polluter of
the local aquifers, or requires
costly cleanup of other waste.
Deed Restrictions
Explore early by engaging
legal counsel to search the deed
records in the local courthouse
for any recorded deed restrictions
which might have been placed
upon the property. These would
include the transfer or sale of the
development rights to the land.
These might prevent you from
doing some things which you
plan for the property. Also be on
the lookout for any potential lia
bility issues.
Deed Title
Before going to settlement,
make sure that the property will
be titled to the right person(s). It
does not matter who pays for the
property or how many wills you
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write giving that farm to your
son, it will be owned by the per
sons) listed on the deed and will,
upon death of one party, transfer
to the ownership of those other
persons with rights of survivor
ship listed on the deed.
If parents already own a farm
or two and are in partnership
with a son or daughter, it makes
little sense to title a new property
in parents’ names. The partner
ship operation will pay for it, but
from an estate planning perspec
tive, it might be better to title it in
son’s name to ensure that he will
not have to share even a part of
the property with siblings who
contributed no effort to pay for it.
The deed title, as we have seen,
may be a means to transfer prop
erty at death. Just make sure that
you make the titles of new acqui
sitions (and rearrange the titles of
other deeds) to fit with your over
all farm transfer and estate plan
ning goals.
Sales are the normal means of
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