Estate planning for farmers and ranchers poses unique challenges. The family farm is a personal legacy, which has often been in the family for generations. Emotional attachments to the farm are strong. According to the USDA, approximately 96% of the 2.2 million farms are classified as “family farms”. Family farms account for over 86% of the value of all farm production, having a critical impact on the rural economy. The average age of a farm operator is 57 and the fastest growing operator segment is over age 65.
Despite the aging farm owner population, most farmers have not planned to pass the family farm and do not have a succession or estate plan in place. The conversation can be hard to have with family members, because farm owners often foresee problems with a future transition, both financial and emotional. However, once the family farm owner’s concerns are known, a creative estate lawyer will be able to provide viable solutions.
A frequent problem with family farm planning is that some children are involved or wish to be involved in the farming operation and some children do not. Parents do not wish one child to receive a greater gift than other children. The family lawyer must craft a transition that considers the non-farming children. Fair does not necessarily mean equal, and dividing ownership of the farm equally between all children is usually a recipe for disaster. Sometimes, the farm owner can simply gift to non-farming children from another area of the family’s wealth; for example, life insurance. If such other assets are not available, a Farm Operations LLC which allows farm-involved children to have managerial duties and a salary as well as a distribution from profits and uninvolved children to receive a smaller distribution as their share of the inheritance can be a good option. These creative solutions will prevent a forced sale of the land, which may be required to pay taxes and distribute the property to the children in accordance with state law if no planning is accomplished.
To begin the farm planning process, I meet with my clients to construct the family history and to understand the family hierarchy and the relationships between siblings, parents and children. I learn of each family member’s strengths, weaknesses, state of marriages, and ability to handle finances. The role played by each person, their educational background, sacrifices made, the long, hard hours worked are all taken into consideration. I also obtain a detailed description and analysis of the current farming operation, including a sketch of the acreage, how each parcel relates to the other, identifying roadways and various houses on the farm.
Taking the situation and goals into consideration, I – along with other team members, usually a CPA, financial advisor, insurance professional, and a banker – develop a strategy that coincides with the farm owner’s objectives.
Failure to plan can cause financial problems for both the farm owner and the potential successor, be a source of family conflict, and result in the forced sale of land to pay taxes or other obligations. Proper planning, however, will allow the farm to endure while caring for the needs of both generations.