It’s a common tradition in the farming industry that estates are passed down within the family to continue production for upcoming generations. It used to be as simple as signing over the deed to your children, and then they simply took over. Today, however, with the numerous estate laws now in place, retiring farmers need to be careful to make sure they’re planning everything properly to keep the farm in the family.
Bingham Greenebaum Doll LLP lists some of the most common property planning mistakes – and more importantly, how to avoid them.
Mistake #1: Joint Title
A lot of farmers want to transfer power of the estate by creating a joint title with their kids’ families that’s automatically handed over to them upon the parent’s death. While this may avoid probate administration, it also places the farm as marital estate in the middle of a possible future divorce. On the other hand, outright handing over ownership leaves it open for claims by your child’s creditors, and a divorce court can then legally divide the property. So instead of any kind of transfer, consider letting your child inherit the farm through a trust or LLC.
Mistake #2: Doing Nothing
Individuals who think they own farms worth less than $5 million ($10 million for couples) sometimes decide to simply do nothing because they’re land rich but cash poor. This will create havoc for your kids when they have to pay those federal estate taxes after you’re gone. A lot of farmers are worth more than they think, and if they do nothing, their kids will owe hefty taxes. So it’s important to get an accurate number based on the current value of farmland when addressing the issue.
Mistake #3: Family Dynamics
Farmers with more than one child are often concerned with making sure that every kid is treated equally when the farm’s profits are divided. But more often than not, this leads to intense family feuds. Most likely, one child will decide to run the farm while the other siblings are more concerned about getting their fair share. There are methods of planning that will allow for dividing net profits equally among all children without splitting the estate itself. This will also prevent off-farm children from intervening with how the on-farm child runs the place.
Contact us today to get answers to your questions about estate planning and how you can keep the farm in the family.
