Creating a detailed estate plan for the family farm is an essential component to building a successful operation. There are many aspects to consider when determining how to sustain farm operations without alienating members of the family. Three common solutions for keeping harmony and assets intact include purchase options and willing the land to heirs.
Purchase at retirement. An heir to the farm can purchase the farm while the family is still intact. Once the parents reach retirement age, the farm is sold to the heir. This requires the heir to have access to a large sum of money or go into debt to secure the purchase. There is also the issue of capital gains and taxes for the parents.
Purchase outright at a set price. Done after the death of the parents’, the heir can purchase the farm outright with the help of estate planning to eliminate the capital gains tax. If the value of the farm increases within the time of setting up the estate plan and the death of the parents, the estate plan could factor in a set price as well as credit options for sweat equity the heir has accumulated.
Split the farm with options. Splitting the farm among the heirs is another way to keep the farm stable. The key is to firmly establish rental rates in the estate plan so those who are not working the farm are still a part of the inheritance plan.
Regardless of the way you decide to proceed, it is crucial to have a detailed estate plan in place. As you can see, each option comes with their own set of financial obstacles. Consult with professionals and be sure to contact us for more information.