Transferor, don’t forget your own interests!

When planning a generational handover of a forest estate, the parties often focus on ensuring that the process is as profitable as possible for the person taking over. However, it’s at least as important to pay attention to the transferor’s interests.
  • Blogs
  • |
  • |
  • Forest ownership
Forest Specialist, generational handover

Many are willing to give up their estate for free and give it to their children as a gift. This may be based on a hesitancy to sell an estate that the owner inherited long ago. The idea of handing over the estate as a gift is beautiful, but one that should not be done without careful thought. After a generational handover, the transferor may still be faced with unexpected situations that call for additional income. How can such situations be financed if the financial security from the forest is no longer available?

Selling is often a worthwhile option for transferring an estate, but its advantages are poorly known. The transferor is not required to sell the estate for the going price, but can choose any price. The ratio of the selling price and the going price determines whether the transaction results in a taxable gift. The more valuable the trees, the higher the selling price can be, since the buyer can use income from wood sales to pay for part or all of the purchase. The transaction provides the buyer with a basis for forest deductions, equalling 60 per cent of the acquisition cost.

If the transferor does not use the income from sales, they can later “return” it to the buyer in their will, as a gift or by investing it in an endowment policy. The transferor can also use the income from sales without tax consequences to cover the living expenses of the person taking over. However, there are limits to what the transferor can pay for: for example, a new car or mortgage payments for a flat are treated as capital.

If it seems difficult to estimate future needs for assets, the transferor can also choose to hand over the estate but retain right of possession. This gives the transferor the right to fell trees and keep the felling income during their right of possession. Retaining the right of possession reduces the fair value of the donated estate, as well as the amount of gift tax. I rarely recommend retaining lifelong right of possession. A fixed-term right makes things clearer.

You don’t need to give up all your assets at the same time. The transferor can also choose to sell a specific portion of the estate, such as two thirds. This creates a tax partnership between the transferor and successor, both of whom are owners and entitled to income from wood sales. A phased transfer offers security to the transferor and enables the successor to take responsibility for the estate.

In other words, the generational handover of forest estates can be carried out in many ways to secure the transferor’s finances, as well as ensure that the person taking over the estate can continue operations in terms of finance. You don’t need to consider the various options on your own. Take advantage of our experts’ knowledge to find the best solution.

Forest Specialist, generational handover
Markku Juuso is an expert in generational handover. He is also a licensed real estate agent and has the right to confirm real estate transactions. Markku has worked for Metsä Group for 20 years. In his free time, Markku rides his motorcycle to take in the beautiful Finnish scenery, spends time outdoors, hunts and even has time to participate in organisational activities.