Use of the Annuity Principle in Transferring the Farm from Father to Son

Abstract

O NE fourth of all farm ownership transfers occur within the family.1 Scattered studies further indicate the importance of family assistance in helping farmers to achieve ownership of their farms.2 The basic problem in many of these intra-family farm ownership transfers grows out of the fact that the lifetime savings of most farm parents are in their farm land, livestock and equipment. As a general rule, farm parents do not have sufficient cash or non-farm investments on which they can retire and turn their farms over to their children. Consequently, the parents either continue to farm for a living or lease the family farm to a son or daughter. The first situation discourages the children from taking over the farm. The second situation generally fails to provide for the transfer of ownership of the farm to the child on the farm when the parents die. Other parents are using a plan which permits them to turn over the management, operatibn and eventually the ownership of the family farm to their children at an early age, while reserving an annual income for themselves for the remainder of their lives.3 This idea is commonly known as the bond of maintenance landtransfer arrangement. It is also referred to as a bond of support and a Bohemian contract.