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Updated: May 10, 2022

Valuing On-Farm Heir’s Sweat Equity Is Complicated and Agreements Should Be Developed to Fairly Compensate On-Farm Heirs (FS-1079)

Determining the value of sweat equity can be both challenging and controversial for farm families. Sweat equity arises as an issue when an on-farm heir receives payment at below market rate, and the farm business grows in size due to an on-farm heir’s below-market labors. Land in the farm may also appreciate in value due to the work of the on-farm heir. It is important to note that the best solution for handling sweat equity is to agree early on to pay the on-farm heir at a market rate. Handling sweat equity early on may necessitate the on-farm heir also working off the farm for additional income if the farm cannot support an additional person full-time. It is important to discuss the farm succession plan and limit the possibility of sweat equity claims at an early stage of farm expansion. Authors: Paul Goeringer, Catherine Onumajuru, Dale Johnson, and Mason Grahame; Title: Valuing On-Farm Heir’s Sweat Equity Is Complicated and Agreements Should Be Developed to Fairly Compensate On-Farm Heirs (FS-1079)