“Splitting up a family farm is hardly a simple process,” observes Matthew T. McClintock, J.D. of estateplanning.com. How true – each one of the areas of estate planning with which we deal at Geyer Law tends to be more complex when it comes to situations involving family farms. Here are some of the reasons why:
- Often, one or two of the children are working on the farm, while others are not (and may have no interest in farming)
- Because so much of the “estate” is in the form of land, you want to be sure your survivors have access to cash to settle your final expenses and support themselves.
- Again, because there may be estate taxes to pay and because so much of the estate is in the form of property, it is important to have cash available. (While only relatively large estates will owe estate taxes, according to the U.S. Department of Agriculture, the average value of assets for larger family farms was about $4.5 million in 2014.).
McClintock describes three possible estate planning solutions for family farm owners who want to pass on the farming business to one heir without neglecting the others:
- The farming heir purchases the farm from the parents while they are still alive but are retiring from the farming business. The proceeds of the sale are incorporated into the parents’ estate plan and divided among all the heirs.
- The farming heir purchases the farm from the estate after the parents’ death. There might be an agreed-upon price built into the estate plan.
- Upon the parents’ death, the farm ownership is divided equally among the heirs, with the farming heir being given the right to rent the property from the other heirs for his/her lifetime or some other specific period of time.
In addition to these three tactics, families might consider purchasing life insurance to provide sufficient liquidity to pay any taxes due or to provide funds to non-farming children equivalent to the value of the land passing to the child who farms.
Revising the tax law, including the estate tax law, is a big topic of discussion in our country right now, and provisions are being discussed that would ease the tax burden on family farm owners. In fact, some measures have already been in place for years, such as allowing farm real estate to be valued at farm-use value rather than at its fair-market value, and an installment payment provision
No matter what further tax relief is enacted, or which method of estate planning is used, it’s crucial for a detailed, formal plan to be put in place, one that minimizes taxes, avoids disputes, and is hopefully perceived as “fair” by all the heirs.
