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How to offset land vs. non-farm assets between heirs

Problem: How can we offset land vs. non-farm assets between heirs when values constantly change?

We have one son who farms with us. Our other son has a great job two hours away. He appreciates the operation but will never come back to farm. We want to be fair to both, but the farm can’t grow if ownership keeps diluting between generations. We’d like both boys to get land, but our farming son needs most of it. We have sizable cash and retirement accounts that could help offset the difference, but how can we do that when asset values change so much? - Submitted by email from D.T. 


You clearly want to distribute your life’s work by design, not by default, D.T. We raise our kids to pursue their individual interests and talents, yet most estate plans default to equal distributions like there’s no difference between the kids. It’s easy to mistake this as being “fair and equal,” but perhaps we should focus more on equal opportunity and less on equal outcomes.

Cash liquidity creates opportunities for your off-farm son that land equity cannot. Self-owned land creates opportunities for your farming son that co-ownership cannot. To accomplish your distribution goals, it will take focused coordination.

You can establish two separate asset “buckets” through your estate documents: one for each son. Then, outline how big your off-farm son’s bucket must be to meet your equalization goals. Do they have to match dollar for dollar or should discounts apply for sweat equity? Next, identify a prioritized list of farm and non-farm assets to fill each bucket accordingly. Keep in mind:

  • Their tax consequences will differ. Land gets a stepped-up basis; IRAs and annuities are taxable.
  • IRAs and 401(k) plans have required minimum distributions starting at age 72. This pulls from the non-farm bucket.
  • Cash accounts tend to get reassigned to new goals over time; like paying off debt, buying a lake house, or adding new farms. Adjust your plan accordingly.
  • If your future living expenses or long-term care exceeds your income, which son’s bucket would you raid first?

So, what if the off-farm heir’s bucket runs short? Some families are OK with that. Others might require the farming heir to make up the difference or identify less productive farms to fill the gap if necessary, subject to rent and purchase options.

You could also assign existing debt to the farm heir’s bucket IF it still cash flows over his acres.

Some families use life insurance to fill a portion of the off-farm heir’s bucket. It provides a leveraged, tax free death benefit and frees cash and retirement accounts to fund other goals. Excess cash gets split equally.

Remember, not all assets transfer by will or revocable trust. Some pass by ownership or beneficiary designation. The flow of these assets must be properly coordinated and accounted for through the estate documents that establish the buckets so the equalization formula and distribution plan can happen.

When done right, the two-bucket strategy offers a flexible way to minimize ownership dilution and create opportunities for everyone.

Mark McLaughlin is an associate with Farm Financial Strategies and a co-owner of Farm Estate GPS in Ankeny, Iowa. He grew up on a family farm near Defiance, Iowa, and shares in the fifth generation of ownership. McLaughlin has helped farm families across the Midwest develop their farm succession strategies for the past 16 years. Find an online resource to help families understand their options and take control of farm succession strategies at

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