Planning for the next generation to continue the legacy of a family farm, or any family-owned business, requires estate planning that begins decades in advance.
Without properly prepared estate and succession plans in place, many farm families find themselves in a bind from a financial and legal standpoint. In many cases, the family farm must be sold. Estate planning attorneys who work with farm families and privately-held business owners, see many of the same mistakes.
The Minnesota Farm Guide, in the recent article, “Four common mistakes in estate and succession planning,” says one mistake is having no estate or farm succession planning at all. Many families don’t do anything. Experienced estate planning attorneys see many difficult situations, where individuals have made mistakes in their planning, leaving the successors to pay the price for those unforeseen consequences.
In farm families, it’s common for one or many children to stay and work the farm with the parents, while the other kids leave to start their own careers. The parents must try to figure out a fair plan for the other kids, while allowing the farming child to have the continued opportunity to farm the family land.
A farmer’s assets usually consist of farm equipment, machinery, grain inventory, and the land. If they want the child who’s farming to keep farming, they may decide to create a structure to get that child the machinery and equipment. However, they can get stuck because if they also want to give them the land, there’s nothing left to give the non-farming children.
Another issue is waiting too long to start estate or farm succession planning. It’s beneficial to everyone to begin early. A parent can buy a life insurance policy to pay out to the non-farming children with the value of the policy equal to the assets being passed on. If it is set up correctly, the policy’s proceeds can also be used to pay any estate tax. Waiting to start planning makes it too difficult or too expensive to get such insurance.
A third mistake is not working with an attorney who specializes in estate and succession planning.
Finally, it’s a mistake to think the only way to give the farming children the opportunity to continue to farm would be to not only give them all of the farm equipment, machinery, and inventory, but also all the farmland. This would be very unfair to the other children.
An experienced estate planning attorney can work with the family to create a strategy that will be fair to all of the children. This includes both those who intend to continue working on the farm and those who will be leaving to pursue other careers. One strategy is to transfer land ownership into a partnership, which then governs how the land is managed, or whether it is to be leased or sold. Every family farm is different, so an estate planning attorney will need to create a plan specific to each family.
Business Succession Planning does not have to involve the family farm, it can include any business. Attorney Kevin Quinn of Legacy Counsellors is an experienced estate planning and business succession planning attorney and can help you achieve your various estate planning goals. Please contact us today to schedule an initial consultation.
Reference: The Minnesota Farm Guide (August 2, 2017) “Four common mistakes in estate and succession planning”