Farm Table says:
“Sweat equity” is the on-farm contribution of children who have stayed working in the business.
But how can we properly recognize this in the succession planning process?
This article from NAB draws on the advice of National Manager of Agribusiness Wealth, Bill Adams, who explains that putting a dollar value on it can help explain succession planning decisions to those children that are pursuing other careers.
Mr. Adams stated:
- Family can recognize the contribution of the on-farm family member to the increased value of the business by placing an arbitrary dollar value on it.
- As well, recognition can be given to foregone wages of the on-farm children.
A basic example:
- The fair market value net worth of the business has increased from $2 million to $3 million. Since the child returned home.
- If the on-farm child’s contribution to growth and forgone wages are 60 percent of the increased value, they would receive a share worth $1.4 million.
- The other two children would each receive $800,000.
Mr. Adams stated that “As long as everyone in the next generation understands the method and calculations used and how the estate is to be distributed, then hopefully family harmony will prevail.”