Estate planning can be difficult for anyone, but it can be extremely tricky for farmers. Farms are both real property, personal property (machinery), and business operations, and many farmers need to figure out how to divide their assets between children who want to farm and others who don’t.
You may not wish to consider your mortality, but it’s worth remembering that estate planning isn’t just about transferring assets. It’s also about treating your heirs fairly and minimizing future conflicts. And it’s best to start early so that you and your family can work together.
Fair doesn‘t always mean equal
Coming up with a fair solution doesn’t always mean dividing everything into equal parts and distributing those parts to your heirs. If you don’t formalize your estate plans for the farm prior to your death, it may be ripped apart during probate based on the laws of intestate succession.
Intestate succession gives no recognition to which of your children have worked on the farm, which have gone off to college, which have substance abuse issues, which have creditors waiting to collect any valuable assets, and which are going through a divorce. The laws for intestate succession don’t know who helped you work the fields, and they don’t know how much you invested in your children to help them become doctors, architects or marketing professionals. The only way for you to divide things fairly between your children is to plan things yourself.
Planning as a family
Because dividing your assets “fairly” doesn’t always mean dividing them “equally,” it’s important for you to discuss your plans with everyone involved. You don’t want to foster any feelings of resentment, and when you discuss your plans with your children, you may even be surprised to learn what they think. Maybe your young doctor was hoping to return to farming at some point. Maybe your on-farm child was hoping to pursue other activities. When you discuss your estate planning process with your family, you may start looking in new directions, or you may gain assurance that your original plan is solid.
Your will is only part of the larger picture
Most people think of estate planning as drafting a will, but there are a lot of things a will can’t do. Instead, your estate plan might involve different tools. You might even realize there are steps you can take now to prepare for the future. Some of the options you may wish to consider include:
- Establishing a business structure with a formalized succession plan
- Putting some or all of your farm into a revocable trust
- Using a charitable remainder trust
We’ll review these options in the second part of this series. You may also wish to review them with an attorney experienced in estate planning for farmers.