Dividing the family farm

Dividing up some assets is a simple matter of math. However, other assets seem to pose as big a problem as the baby in the legend of King Solomon. Family farms, like that baby, are often beloved and difficult to divide.

For those who have invested years of work on a family farm or similar business on land, the question of how to convey it may seem a matter of intense emotion rather than of quotients and carry-overs. But with creative estate planning, inheritance doesn’t have to be a matter of choosing one heir over others or liquidating a company you’d rather leave intact.

You may want to consider a variety of strategies, but the bottom line is that an imperfect plan is vastly superior to no plan. Following a “wait and see” approach means that any unexpected turn could result in an outcome that neither you nor your heirs would prefer. Even if your plan isn’t ideal, you can review and change it as you work on something better. In the meantime, don’t leave the future of your farm to chance. Your succession plan should be thorough and in writing, not merely in your mind. It should also take a form that can withstand legal scrutiny.

Avoid the trap of imagining that siblings who get along will be able to decide how to divide up your property after your death. None of your heirs will be in a position to serve as an impartial judge, and even if they don’t end up disputing how to divide the property, it will have left them a heavy administrative burden (and potential tax burden) at a time when they are grieving and dealing with the rest. of your heritage. You should certainly involve them in your plans, but the ultimate responsibility is yours.

The best solution for you will depend on the variables at stake, including the number of heirs you want to include and the nature of the property you want to pass on. Your heirs may have different levels of skill or interest that will dictate different roles in running a business. They may have had different levels of involvement in the past, reflecting these skills and interests as well. As with other estate planning concerns, it makes sense to differentiate between fairness and equality when dividing the estate.

The most important decision will be whether to liquidate the farm and divide the profits among your heirs or transfer the working farm, including the ownership, management, and labor components of the business. The former raises its own estate planning problems, but it is comparatively simple. For many, however, it is likely the most emotionally harrowing option. Also, if one of your heirs has already invested a lot of time or effort in working the property, you may believe that selling the estate just to simplify the process of dividing it is ultimately unfair.

If you divide the estate equally without liquidating it, more questions arise, especially if you have multiple heirs. Will the child or children working on the farm have to pay rent to siblings with other careers? If the boy who works on the farm is outnumbered by siblings who don’t, could the majority win over him in votes on important decisions about the future of the farm? If you prefer to give the entire farm to one child and give goods of equal value to others, how will “equal value” be determined? If you plan to divide a business or commercial interest that needs active management, consider the time and energy it will take to maintain the value of the entity; An interest in the estate is certainly valuable, but its value will be maintained through hard work, while liquid assets come with fewer strings attached.

Remember also that children or family members who have worked on the farm or with the property are likely to have different expectations than heirs who have not been involved up to this point. An adult son who has stayed and worked on his farm may very well depend on it for his future livelihood. If your farm is not currently profitable, it is also important to have a plan to address the shortfall during and after the transfer. Consider whether you are willing to finance capital improvements as part of the estate plan.

What if none of your children currently work on the farm? It is important to allow time to teach your heirs how to manage what you plan to give them if they have not been part of the farm operation. If none of your children have the ability or the interest to take over the day-to-day operations, even with time for training, you should accept it; You may want to transfer your estate as an active interest to someone else, structuring a certain amount of the proceeds to flow back to your family.

Whoever you choose, identify your successor or successors, if you plan to transfer ownership of the operation. Have plans to transition to them when you retire, but also in the event of unforeseen disability or death, so that all three scenarios have corresponding plans. Also take the time to discuss your plans with those affected, both your heirs and others with significant interests in the farm, making sure they understand your intentions and the planned timeline for the transfer of responsibility. If you have children and plan to transfer the farm to someone else, you don’t want it to be a surprise.

You will need to plan your ideal transfer schedule. Evaluate how long you would like to continue working (assuming you can) and what your sources of income will be once you retire. Do you want to continue working on the farm after it ceases to be the owner? Will he be able to step back in the final decision-making, if so, leaving it to his successor? Or do you prefer to take a more traditional and relaxed retirement? Making an informed decision about how to divide the estate will also require a complete and up-to-date understanding of your overall financial situation and estate plan, so that the transfer can work in harmony with your other limitations and goals.

Estate planning is always complicated, and especially with a farm or other business. You will need a financial planner and attorney with experience in estate planning issues specific to farms or other small business interests. If you are considering restructuring the business to accommodate multiple owners, you may want to seek out a management consultant with agriculture experience. Unexpected life events aren’t the only reason to start planning early. Taking time to deal with estate planning issues allows for in-depth conversations with professionals and your family, in which you can respond to their concerns and advice.

Once you know what you want to happen, the professionals you hire can help you understand the most effective way to structure the split and transfer. There are many options, with pros and cons. Often there is no single correct answer. Here are some factors you may want to consider:

• Minimize the tax liability for you and your heirs

• Risk management and protection against creditors

• How the co-owners or partners will share the administration and / or profits

• Whether and how the proceeds will flow to the heirs who are not involved in the day-to-day operation of the farm.

• State law requirements and restrictions

All of these factors and more can influence the planning solution that is right for you. As with any business succession plan or succession plan, remember that making the plan is not a one-time event. Instead, it should be a process where you respond to changes and new information by updating your plans as needed.

The discussions and choices involved in dividing up a family farm or other family business will not be easy, but they are essential. The earlier you start, the more time you will have to come up with a plan that is best for you and your family.