Since every farmer, and every farm, is unique, estate planning should fit the uniqueness of a situation.
This is especially true when transitioning a farm to a new owner. One of the key elements of any transition is fairness – to the owner and the new owner.
When the transition involves a direct family member, a common approach is to tally the value of the farm and split it evenly among the heirs. However, as Rich Dunn points out in A successful farm legacy plan treats heirs fairly, another option is for the heir to buy second to die insurance.
If the heir owns the policy and pays the premium, the death benefits will not be part of the estate and come to the heir income tax-free.
But what about farms transitioning to a non-family member? One New England farmer took a novel approach that lets him stay on the farm until his death, as he cedes partial control of the land. Ron King entered into a deal, with a couple who purchased his half of the family farm, that includes personal provisions. The new owners,
…must be sure he has food from the farm garden and enough firewood to keep warm. They have even agreed to take him into their own home one day, should age, circumstances or his health require it.
Whether it is a new type of insurance policy – or a contract with personal needs attached – the estate planning goal is the same: Create a farm transition that is fair.
In the end, either approach is good for the industry.
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