In passing the family farm to the next generation each situation is unique and will require thoughtful planning. The transition comes with different concerns based on the types of assets that need to be conveyed and the time frame for the conveyances. The first factor to consider is whether you have one intended heir or multiple heirs.
One Heir Transfers
When you have a single heir in mind and that intended heir is willing to learn and take over the farm business, then the estate planning process is much more straightforward. You can create a will that will transfer most of the assets if your intention is to make the transfer at your death. If you prefer to retire and make the transfer during your lifetime, there are several strategies available to make a gradual transition. You can do a structured purchase agreement which can divide out the purchase of the business from other assets like the property itself, machinery and livestock. Each asset can be treated uniquely in the plan.
This also includes other items if you have other intended heirs for other types of assets. For example, you can leave certain property to the intended heir that will continue to manage and own the farm, and you can leave assets like rental properties, gas and mineral rights, retirement accounts and other sources of income such as billboard rentals and cell phone tower rights to non-farming beneficiaries.
Multiple Heir Transitions
If you have more than one person in mind to take over the farm, then you may need a more complex Farming Succession Plan. This is similar to any business succession plan but more tailored to the farming industry. This plan will help you determine how to divide the assets as well as create a strategy for the new owners to work together cohesively and have a seamless transition of ownership and power.
Life insurance may also play a role in farming succession plans. Life insurance can function as a useful tool for the farming heirs that want to buy out the non-farming heirs. It may provide the liquidity needed to ensure a fairer distribution of wealth among farming heirs and non-farming heirs.
First, consider how best to transfer ownership of the land itself. It can be transferred during your lifetime by sale or gift or it can be transferred at the time of your death. Depending on the decision you make here, different strategies will need to be employed. You will also need to consider the tax implications of each option.
There are three main approaches to transferring the farm’s machinery over to the next generation. (1) It can be sold outright or through an installment plan. (2) It can be gifted. You can gift up to $15,000 in value each year to each individual. (3) It can be leased to your successor.
Feed and Livestock
If you have breeding livestock, you may want to sell the offspring and continue to own the breeding herd. If you have feed and market livestock you may want to transfer, either by sale or gift, the livestock at the low point in the feed inventory before harvest or between the sale and replacement of market livestock.
If you choose to retain your livestock until death, you may need to create a Livestock Trust. Similar to a pet trust created for domestic animals, a Livestock Trust is a written document that outlines how the livestock will be cared for after the owner’s death. It is funded with enough assets to maintain the proper care until the livestock is transferred to a new owner. The document is very detailed and includes information such as veterinarians’ contact information, trucking and transport companies, breed representatives, terms involving the sale of semen and embryos, and information on how to market and sell the livestock.
Properly planning for a farm transition can be one of the most complex of all estate plans. If you need assistance in making sure your farm continues after you die or become disabled, or if you are simply ready to retire, contact the knowledgeable estate planning attorneys at Stouffer Legal in the Greater Baltimore area. They understand the complexities of farm succession planning and can help you tailor your estate plan in a way to best meet your overall goals. You can schedule an appointment by calling us at (443) 470-3599, emailing us at firstname.lastname@example.org, or register for an upcoming free webinar using the link below: