Over the next decade, a quarter of our nation’s agricultural land is expected to change hands, according to the USDA Natural Resources Conservation Service. The NRCS identifies four key goals for a strong estate plan for farm owners:
- Transfer ownership and management of the agricultural operation, land, and other assets to a new operator
- Avoid unnecessary transfer taxes, such as income, gift, and estate taxes
- Provide for financial security and peace of mind for all generations
- Foster the next generation’s management capacity
Further complicating the task of assisting farm owners with their estate planning, we’ve found at Geyer Law, is knowing that complete estate planning for farmland owners must involve the needs of all family members, even those who may not be actively involved in farming.
The Farm Journal Legacy Project outlines four possible strategies farm owners can use in estate planning:
First Right of Refusal:
A landowner can give first right of refusal to a family member, friend, neighbor, or tenant. The farm cannot be sold without first being offered to the holder of the first right on the outlined terms. That right to purchase can be effective immediately or set up to be in effect upon the death of the owner. A will or trust might leave the farm equally to all the children, requiring the non-farmer children to offer their interests for sale to the farming children using the appraised value as of the date of death.
A dynasty trust gives the farm income to your heirs for their lifetime and can help keep the farm intact for distribution to your grandchildren without being included in your children’s taxable estates.
Limited Liability Company (LLC):
Parents and children contribute land to an LLC. Each receives proportionate ownership shares. An LLC may restrict the right of non-family members to acquire interests in the farm ground. An LLC may avoid probate administration upon death if used in conjunction with a revocable trust agreement.
A buy-sell agreement is used when unrelated parties are in business together or when brothers or cousins farm together and want to set forth exactly how the business will transfer upon the death of one.
Often farm owners are so busy they don’t have time to address all these legal issues. At Geyer Law, we advise clients on proper organizational structure for preserving the farm interests or preparing to transfer the farmland with minimal disruption to operations. Such plans may also result in the reduction or elimination of costly taxes.