Estate Planning for the Family Farm and Your Legacy

Running a family farm is exciting, but also poses difficulties when planning your estate. Your loved ones may or may not want to run the farm. As you plan your estate, you must make important decisions early on to decide how to best fulfill your legacy.

Estate Planning for the Family Farm and Your Legacy

If you run a family farm, you have big decisions to make when setting up your estate. Who will take over the farm? Are they capable of running it? Have you thought about the tax consequences of passing along the farm?

Don’t forget about the legacy you want to leave behind. Is this a farm that’s been in the family for generations and you want it to continue? There is an emotional component you must consider when planning the estate for your farm.

The Emotional Piece of Estate Planning

When you’re leaving behind farmland, you’re not just leaving behind an asset, but work too. Not every family member in line for the estate will be interested in the work, which leads you back to your question, ‘who do you leave the farmland to?’

There are hundreds of ways to do it, but here are the two most common scenarios:

• Leave the farmland to one child – Most families have one child interested in taking over the farm. It makes sense to leave the land and work to the child most interested. You know your legacy will be protected and the land will continue through future generations in your family.

This opens up other issues, though. If you have more than one child or there’s more than one person you’d like to split up your estate for, it’s an uneven split. The child inheriting the land likely receives something of much higher value than the others.

Life insurance may help offset this issue. If you leave the land to one child (beneficiary) and a life insurance policy for the others, you can leave an equal amount of assets just in different forms.

• Split up the farmland equally – You may consider dividing the land up equally among your beneficiaries. While it seems fair on the outset, it has its share of issues. First, no farmland is 100% equal. How do you split the land up so that each beneficiary receives an equal amount of ‘income earning land’ while equally splitting the debts involved with each plot of land too?

What if not all beneficiaries have an interest in the income-producing portion of the land? If they don’t want the work, they may be inclined to sell their portion or just let it go – neither of which you had in mind for your legacy.

Think about this option carefully. Only consider it if you have multiple beneficiaries interested in inheriting and working the land and if you have the debts under control.

Other Options

If splitting the farmland up equally or leaving it to one child with life insurance as a supplement for the others isn’t viable, here are a few other options:

• Split it evenly and let one child buy out the land – If you know one child has the financial means to buy out another, you can split the land evenly and let your children work out the financials. Only do this with your child’s acceptance of the situation, though. Don’t assume one child will want to (or can) buy out the land, ask if that’s his/her intention.

• Split it evenly and let one child rent from the other – Cash rents are a great way to split up the land equally while letting the child without interest in farming off the hook. The cash rents may be a more affordable option for the child keeping the property and it provides monthly income for the child without an interest in maintaining the farmland.

• Incorporating the property – Before you set up your estate, you can set up your farm as an LLC. This takes some of the ‘feelings’ out of it and makes it a business transaction versus a family legacy. There may be tax and financial benefits, but this method could also cause more family tension as share values increase and decrease throughout the years.

• Liquidate the farm – If your beneficiaries don’t have an interest in farming, liquidating may be your best option. While it’s not the legacy you envisioned, it may be a reality for your family dynamic.

Liquidating the farm means selling everything, land, crops animals, and machinery. What’s left is money that your beneficiaries can split according to your wishes and as stated in your will.

Start Estate Planning Early

As a farm owner, you have a lot more to consider when estate planning than someone without farmland. Start planning early, by talking to your family about your desired legacy and your children’s plans. Do they see themselves running the farm? Have they already started working there?

If not, you may want to look at other options and discuss them early on with your children. Life is unpredictable, and preparation is key. Knowing what your children do and don’t want with your farmland is an important piece.

If they don’t have an interest in keeping up the land, you may want to look at other options long before you need them to ensure your estate planning goes how you hoped, and you can leave behind the legacy you planned.

Estate Planning is Important for Everyone

Whether you own a farm, a house, or any other assets, planning your estate is the key to a successful end of your life. You never know when your family will need to use your estate plan, putting it into action.

Plan early and revisit it often. Every few years, make sure your family is still on board with the plans you put together to make sure it’s still viable. If not, let’s talk about the necessary changes to make sure you leave behind the legacy you desire for you and your family.