Price and Interest annual payment chart

Mount Everest is the earth’s highest mountain. Its peak is 29,029 feet above sea level. 

In 1865, British surveyor Andrew Waugh labeled the mountain, once called Peak XV, Mount Everest after Sir George Everest, the previous Surveyor General of India. 

A British expedition in 1922 pushed the north ridge route up to 8,320 meters, marking the first time a human had climbed above 8,000 meters. Seven climbers were killed in an avalanche on the descent.

George Mallory and Andrew Irvine made a summit attempt in June of 1924 but never returned. They were spotted high on the mountain but disappeared in the clouds, never to be seen alive again, until Mallory’s body was found in May of 1999 (75 years later) 800 feet from the summit on the north face. 

Dangers such as altitude sickness, weather, wind and significant avalanches have long been part of the allure of climbing the world’s highest peak. At least one person has died climbing Everest each year since 1900.

Everest’s safest year on record was in 1993, when 129 climbers reached the summit and only 8 died (6 percent). The deadliest year was 1996, when 98 climbers summited and 15 died (15 percent).

The annual death rate has generally remained constant over the history of climbing Everest as one death occurs for every 10 successful ascents.

Plan for descending

Most climbers die while descending the upper slopes of Mount Everest after having reached the summit.

Some sources say there are still as many as 200 bodies on the mountain buried in crevasses under avalanched snow.

The grueling task of a climb to the world’s highest point takes an enormous amount of physical and mental preparation, as one wrong move leads to disaster. Unfortunately, the record indicates that mountaineers spend more time preparing for the climb than the descent.

In some ways, this parallels the building of a farm estate without a careful farm transition plan at the end of life’s journey.

Every day, in some way or another, the American farmer plans for the “build up” of the farm estate. Weather, inputs, tillage, marketing, management and labor are just some of the important decisions that could make or break your operation.

Planning for these issues over a long period of time can make you feel like you are climbing Mount Everest.

After reaching the summit at the end of your journey, will you have given as much thought to how to get back down from the peak as you planned to get there?

A landowner called my office this week to explore options for farm transition. Listening to her story made me think of the Mount Everest analogy. For many years she had consciously and willfully made management decisions for her farm.

From fertility and tile to caring for waterways and structures, she had amassed a farmstead with 200 acres that she was proud of.

With enough rental income, social security and cash in the bank to take care of her for lifetime, she had successfully reached her summit and is now looking for options for the next phase — how to get down off the mountain.

Never marrying, she didn’t have any children. She has siblings, a niece and nephew and a long-standing relationship with her unrelated tenant.

“I don’t want my farming relationship with my tenants to end. Why should their life get difficult just because my life ends?” she said. “After I am gone, I want them to continue to take care of the farm just as they have for years — as if it was theirs.”

Goals and options

She wanted to leave some cash for her siblings and their children, but her main goal was to keep the farm together and reduce as much administration and inheritance tax as possible.

Her estate will most likely never go over the current federal estate tax exemption limit of $5.49 million (2017 values indexed for inflation in the future).

There is no Iowa inheritance tax for spouses or lineal descendants (children and grandchildren). However, there is a 10 percent Iowa inheritance tax for brothers/sisters and a 15 percent Iowa inheritance tax for everyone else.

If her farm appraised in her estate at $10,000/acre, the $2 million appraised value would generate between $200,000 and $300,000 of Iowa inheritance tax (depending if it were taxed at 10 percent or 15 percent).

She didn’t want to gift it outright while living, and she didn’t want to wait to have the farm distributed by her will at her death either.

She seemed to lean toward selling it on a “friendly” contract to her long-time tenants (reduced price and interest). She wanted to keep her gross income about the same that she was receiving in rent ($50,000 or $250/acre, less $8,000 in property tax and insurance).

Currently she pays 20 percent combined federal and state income tax on her net taxable income of $38,000 (after deductions and her single exemption).

The table shows combinations of price and interest that would yield a contract payment of approximately $50,000 per year for 25 years.

Due to a lifetime gift exclusion of $5.49 million that is “unified” with the death exclusion, and flexibility to set an interest rate, she can set the price on 200 acres at whatever she feels is best for both parties without any gift tax.

The lower the sale price, the higher the interest rate needs to be to keep the annual payment the same. A lower sale price would reduce her estate for administration and inheritance tax (after the current look-back period).

On July 1, 1992, my journey began in the farm estate planning and transition business.

The landscape has changed over the last 25 years. The need for conscious and careful planning has not.

My hope is that you spend as much time researching and planning for different possibilities to get down from your mountain as you did trying to ascend to its peak.

For 25 years, Steve Bohr has been a partner in the farm continuation firm of Farm Financial Strategies, Inc. For additional information on farm continuation issues or if you have a question please contact Steve via email at or by phone at 800-375-4180.

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