Housing for son
Our son has been back on the farm from college 4 years now and will stay. He is living in an old house on an acreage owned by the farm. Living there is part of his package. He would like to by the acreage and home to be free to do with the house what he wants-tear down and start over, remodel, whatever. Of course, he would have to be paid more salary in cash in order to do this. He figures that the farm could pay him the same amount it is paying for the property, the taxes, utilities, etc. Then, he would pay all the bills. The farm wouldn't be paying out any more than it is now, and our son would have something that is his.
I can see his point. He has seen us live in a house owned by the parents all our married lives and always needing to ask about doing improvements, etc. He doesn't want the same situation for a wife he may bring into the family some day. Generosity is not the issue-our house is fine-it's just the principle of ownership and freedom to do what we want. The son's house is a bit of a shack, even for a single guy.
Re: Housing for son
If the farm owns it free and clear, i see no harm with talking with your accountant about how such a transaction should be handled, for tax purposes. If money is owed on the property, then you would have to ask the lender to release whatever land and the house you want to transfer to him.
An accountant may instruct you to get an appraisal for taxation purposes, too. An impartial party usually has to set a reasonable or current market value for such transfers.
Does your county have a minimum acreage requirement for a homestead? Some require an acre, others up to 20, in the two states where we own farmland and homes. Are there any restrictions against parceling off the house?
Check this set of points first, before you spend any money on surveyors and professional advice. Don't go by how it "used to be," as land use laws change, and new requirements can prohibit things that have "always been done this way."
One other thought that does occur is that he may chnage his mind and want to get a different job, or need to, and the compensation of the land and home might not be "worked off" by that point. It would also be advisable to have a lawyer draw up the transfer agreement, however you decide to do it, so everyone has the protection that the transfer is legal under your state' s laws.
Re: Housing for son
Having been on about 3 sides of a situation like this my first thought is this: If the house is "an old house on an acreage owned by the farm" and "the farm" is his family and he is going to be a part of "the farm" and (this is an assumption on my part) an heir apparent ... why is he being required to ASK to do ANYTHING to the blamed old house?
Understand, I don't know anything about "the farm". But when I read "He has seen us live in a house owned by the parents all our married lives and always needing to ask about doing improvements" my first thoughts are someone older is way too controlling. The best thing to do is push the house in and tell him to run while he still can. Because this should not even be an issue. If "the farm" can't pay him a fair wage and has to start playing games with his compensation by figuring out what "an old house" is worth "the farm" has some other problems that need addressed before adding anyone else to the mix.
You asked if there were any thoughts....
Re: Housing for son
I certainly am not an expert on this subject. My first thoughts were how many people get caught up in this trap of working very hard for someone else and expecting a return for it down the road. Too many times they end up with nothing but hurt feelings and anger. Family inheritance is a very difficult subject until it is out in the open with the required paperwork.
If the house is that bad, give it to him or get rid of it. He should be paid a fair wage and know what to expect in the future.
Re: Housing for son
Okay, I read the other two responses, then re-read my first one and then your original one again. I responded the first time on what I think was a pretty much legal/.business level. The other two reacted on more of an emotional level, I think.
One detail I caught more in my eye this time is that you say something about his cash salary needing to be greater to stay and live there, and the necessary raise being equal to what the farm is paying for the land, taxes and utilities now...this implies to me that the land is under a lien. Correct?
Can he stand for the loan on his own? Can you afford to pay it off, so you could transfer it to him? You cannot give him something unless you own it. YOu rlender may allow you to parcel off a portion of the property that roughly equals the equity you have in it, but then your local government has to agree to that division.
There are some significant tax questions involved with a transfer of this nature, too. Even prpperty taxes can become significantly changed in certain cases. In-family transfers ( thus, the present ownership question) are usually exempt from rollback taxes on transfers of land in use-deferred taxation programs. Here on this little farm we own in NC, the five years of rollbacks today would be over $60,000.
Is that parcel large enough to qualkify for use-deferred taxes on its own? MMinimum acreage requirements are usually ten acres or more, adn you may get it , even if that parcel is smaller, because the land is wihtin fifty miles of other acres owned by the farm (typical loan use tax code terms...your local code may vary).
There are a hundred questions I would need to know answers on for this to be done properly. just from a business perspective. What happens to the income from crop on that acreage? If he owns it, then the farm has to rent it back, or do shares, and then the money may not work out for the farm, too.
Lots of questions...what sounds simple at first glance often may be quite complex, when you go about doing it. What you may end up doing is transferring the house and a small homestead acreage, and then the farm paying off the rest of the land. (That answers his problem about improvements...which were obviously more of an issue in his growing-up household than not.)
Then when it's paid off, working with him to make a purchase of it part of his package. Main problem now is: the way I read your statements, you cannot give him something you don't own in the clear yourself.
I am with mike on the question of "Who is the farm?" Is that his parents now, or still parents and grandparents, or a corporation, an LLC, etc.??? That can make a serious legal/tax difference.
On the emotional side, his situation now is not uncommon for a farm kid returning to the family business, I think. As a valuable asset, land is a big sticking point in situations like asking a new bride to sign a pre-nup v risking having to buy her out if the marriage doesn't make it. Again, a smaller acreage with the cruddy shack may be easeir to risk, than a whole farm.
Can you folks stand it if he gains ownership, knocks down his current home, and uses the land to secure a big mortgage on a fancier house? You will be giving up total control, if you give up ownership. You have had no "freedom to do what we want." That is a huge deal when you are talking about the home your family occupies.
Sometimes, you want your children to have something you never had for yourself. For example, Mike and I wanted our kids to have more fun than we had...I still want to vomit when I hear someone say, "Time is money." My father drove us like little slaves with that one. His family lived a very conservative lifestyle, so he wanted our children to have a bit wider experience.
If your som heard you and your spouse at any point wishing you could just do what you wanted with the house, then that had a significant impact on his wishes to own his own place. My parents lived with his folks their first few years of married life. It was not good.
There is a legendary conversation in which one of my husbands' old aunts advised my mother, "Girl, live in a s*&t house, before you live with your in-laws...." Truer words were never spoken, and it doesn't have to be in the same househild.
The ":principle of ownership and freedom" you mention are significant desires in the human race. I think there is a way for your son to have what you want to give him, but you have a lot of research to do first.
Re: Housing for son
if the house is that bad, I woud say push it in and put a used mobile home on the place until he can get enough money together to buy land build something for himself. He may have to work off the farm at a part-time job if there is time for that. If he is the full-time employee on the farm then he needs to be paid the wages and pay rent on the home he lives in. I have a brother that lives on a farm in a very old house, but he he doesn't own it or the farm he lives on and when my DF was alive, he let him put up grain bins and a machine shed on the property...now the trust has control of it and it is a messy situation. Get everything in writing regarding his employment and see a lawyer about his future.
Re: Housing for son
Thanks for the comments. The farm consists of the farm corporation, which own some of the ground and the grandmother owns some of the ground. Our house and 5 acres is owned by her. For 28 years the corporation has paid rent to the folks, to the sum of around $168,000. My point is that we could have been paying that same amount each month as a payment and would own the place now, with the freedoms that come with it. While she very generous, we don't feel free to just do improvements. She is always following behind to pay for that can of paint or new light fixture.
The grandmother (my husband's mother) loaned the corporation the money to buy the 3 acres with the old house on it. It was purchased several years ago when it came up for sale because it gave easier access to one of our fields, control of the water, gas, etc. We needed the ground, not the house. The corp. still owes her some on it, but it is paid down quite a bit. He has lived there 4 years, and it is time to decide whether to sink money in it or do something entirely new.
Today's idea from my husband: The corp. sell our son a couple of acres in a lovely little hillside spot in a pasture across the field from us that he's had his eye on. He could probably pay for that outright now. Then, it's up to him how he develops it, saving his money and doing as he can. He has no wife or family at this time, so he has time to do it right. THEN, my husband would like to bulldoze the whole old place down, house, windbreak, etc, so the center pivot can go all the way around.
We do have a house inspector coming on Tuesday to let us know if the existing old house is even worth salvaging. If not, that will probably decide it.
Re: Housing for son
I was a bit blunt in my comments earlier. I wasn't side stepping or moderating my thoughts. I'm not saying any of them were wrong, just not presented very well. Let me offer my Grandfather's advice on fixing the old house. Gramp's house, or at least parts of it, is supposed to be well over 150 years old. He told me one time "Never fix up an old house. Just push it in and start over again."
We don;t fully understand your situation and it isn't any of our business. But whether it is good or bad, well intentioned or manipulative, We need to give our kids independence as much as possible and the freedom to fail. Gramps went through the depression with 4 young kids. He told me as long as he had money my family wouldn't go hungry. But he also let me live with my decisions.
If the farm sells him some land to build on it needs to be HIS. Don't sell him a few acres in some non-productive ground in the middle of the farm. Set things up so if he decides to quit farming and start selling soda pop and hot dogs in town it doesn't materially affect the farm.
It may be in everyone's best interest for the farm corporation to require your son to live on site and provide housing for him to do so. But if the farm does require it the house needs to be his home to do with as he sees fit. He should be fairly compensated NOW, not with a future promise.
OK, time to get off my soapbox
Re: Housing for son
Well said...and shine those boots, man!
Re: Housing for son-update
Thanks for your thoughtful replies to our situation. Things have been moving very quickly since I first posted. Here's the plan:
Son has picked out a nice plot of ground that grandma will sell him. The surveyors are here this morning looking at it.
He has a simple but roomy house plan picked out and has already gotten a bid from a local builder.
He has already secured the loan.
The farm's role? Put up enough land for the down payment, and loan him a third of the monthly payment each month at simple yearly interest, to help him with cashflow. The farm is giving him nothing, it will all be paid back. BUT, the farm has started paying him his housing allowance to him in cash instead of being just part of his pay package. He will play rent back and utilities until the house is built.
Advantage to our son? His own home, his own equity. He is still young enough that a 30 yr. note will be paid off by the time he is our age. If he should ever be blessed to have a wife and family, he will have a nice home for them right from the start. Realizing that the life of a house may see several remodellings, he's planning on simple interior finishings, knowing he has his whole life to "upgrade". In other words, the granite counter tops and fancy faucets can wait for another day!
Advantage to the farm? A simple plan that easily pencils out. Also, the far-off goal of razing the entire old place so the irrigator can go all the way around will happen sooner than later. The farm had already owned the quarter, but reluctantly (because we didn't want to be landlords) bought the homestead when it came up for sale several years ago, in order to gain better access to the field and have control over utilities. The plan all along has been to one day get rid of it all.
Disadvantages? Not many that we can see. 30 years is a long time and anything can happen. But, anything can happen before I even get this typed and posted. We've thought of every downside scenerio we can, and feel we can deal with whatever may or may not happen. And, or course, things will probably change anyway, as succession takes place some day.
We look at young farmers in the community who are purchasing huge fancy homes in the country, or are building mansions, and we realize that they surely can't afford them. Someone is helping them, either like we plan to do or are buying them outright. I'm sure there are dozens of ways to make it work. This is what we have chosen to do.