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Farm Value


Christian

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An older couple for whom I have worked for years is now in their 80's and both in assisted living. Their son who lives out of state has power of attorney and comes back often to look after things. The couple both had jobs while married and now get pensions from that work. They have a farm some of which the husband inherited and other sections which were bought during their long marriage. He is now in really bad condition and sadly likely will pass on not to far off. His son had asked me about the best way to sell the farm and I advised it should be held until after both parents were gone to use the increased value and avoid tax. As with no few prospective heirs he is having other thoughts and wonders if his mother could sell it instead. She will inherit it but my concern is the value of those parts purchased after their marriage. Would not the land purchased be one half hers already and be valued at it's costs when purchased years ago thus setting up a split basis for tax purposes? If he elects to do this I am going to advise him to settle this point with his attorney but I am wondering if any of you Virginia folks have encountered this and what you might think of it.

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Son also needs to make sure that being in "assisted living" that there are no agreements  that the facility or maybe even the state get the farm. Many times this is overlooked and a big surprise.

On the tax issues, yes if the property was purchased by THEM, then probably the step up is only on the fathers basis when he passes and mom's remains at her cost. Depends on the wording of the deed, etc..

As an aside, make sure the attorney he "settles things" with acts on tax knowledge and law and not on just what the attorney thinks. Some do not and are also surprised.

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Fortunately for them they have long term care insurance and adequate assets to take care of that issue. There is really no need for the farm to be sold but heirs get itchy ideas. The son is for lack of a better word a "pantywaist" and now is not employed so you get the idea. Folks work their entire lives to achieve and build something. Next generation comes along and thar she goes.  

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2 hours ago, Christian said:

..... he is having other thoughts and wonders if his mother could sell it instead. She will inherit it but my concern is the value of those parts purchased after their marriage. Would not the land purchased be one half hers already and be valued at it's costs when purchased years ago thus setting up a split basis for tax purposes? If he elects to do this I am going to advise him to settle this point with his attorney but I am wondering if any of you Virginia folks have encountered this and what you might think of it.

I see a lot of minefields here.  If it is sold while both parents are still alive, there will most certainly be a problem in establishing basis, particularly the inherited part.  Since VA is not a community property state, could the mother make the sale.  Even the part that was acquired while married might be titled solely in the father's name.  Does the father have a will.  What does it say? 

If the father dies without a will, the estate will go through probate, unless there Is  a Revocable Living Trust.  Probate is required in VA when the estate is worth more than $50K.  If it goes to probate and there is no will and there are children, the children or their descendants get 2/3rd's and the wife only gets 1/3rd.  Even when there is a will, probate can be challenged and then it can become messy, lengthy and expensive.      

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7 hours ago, Max W said:

I see a lot of minefields here.  If it is sold while both parents are still alive, there will most certainly be a problem in establishing basis, particularly the inherited part.  Since VA is not a community property state, could the mother make the sale.  Even the part that was acquired while married might be titled solely in the father's name.  Does the father have a will.  What does it say? 

If the father dies without a will, the estate will go through probate, unless there Is  a Revocable Living Trust.  Probate is required in VA when the estate is worth more than $50K.  If it goes to probate and there is no will and there are children, the children or their descendants get 2/3rd's and the wife only gets 1/3rd.  Even when there is a will, probate can be challenged and then it can become messy, lengthy and expensive.      

Actually, I believe under current law the wife would get 100% unless there are children are from a previous marriage.  And I believe the value that requires probate is now $100,000.  However, your other comments are spot on - especially the part about how the property is titled.  Perhaps if you point out to the heir how much of the value of the farm might be lost to taxes if sold now as opposed to later, he will understand your point.  Use actual dollar amounts as examples as well as telling him the percentages.  But in the end, you can't control what they decide to do. 

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I appreciate all of your responses. The parent's have wills willing all property to the other. I have pretty much talked him out of his idea explaining that if the purchased lands are deeded in both names his mother's half interest would be valued at 1/2 the purchase price at that time and he could incur significant taxes. I have not run this by my own attorney but I am confident this would be the case. In my own family we had one of these split valuation deals that proved to be a real mess. :(

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