In the realm of estate planning, farms present a unique challenge. Like most business owners, farmers want to minimize estate taxes while ensuring their business is kept intact and passed on to the next generation. Unlike other types of businesses, however, farms tend to be family endeavors, likely passed down through several generations. When farming is in your blood, you need an estate plan crafted to protect everything your family has worked so hard to build.
Land plays a major role in most farm estate plans. Because land typically makes up such a huge part of the farm’s assets, it is important to explore estate planning solutions that keep the land intact while providing a fair inheritance for all your heirs – even those who do not wish to continue farming. If you haven’t already formed some sort of business entity, it is probably a good idea to consider what the various options have to offer. Corporations, limited liability companies, and family limited partnerships can insulate your estate from creditors’ claims, prevent the land from being parceled out, and provide your beneficiaries with an equal distribution of wealth. The amount of operating debt you carry, as well as your total assets and how they are titled, will determine which type of business entity best suits your needs.
It is also crucial to consider life insurance. A comprehensive life insurance policy will provide your loved ones with immediate access to a large lump sum of money to keep your farm up and running while your successors work through the transition. If your operation leases equipment or relies on long-term financing for necessary machinery, life insurance will ensure your heirs have quick access to instant liquidity, which will buy time and provide stability.
Trusts are often key to a farm estate plan – especially when combined with a life insurance policy. Because most farms own assets well over $1 million, a properly funded trust will likely save your heirs thousands of dollars in probate costs and attorney’s fees. Trusts are also administered privately and provide continuity by naming a successor trustee who can take over when you’re gone. This is in sharp contrast to a probate administration, which can tie up land and assets for long periods of time, crippling your operation in the process. A well-planned trust can also provide periodic distributions to non-farming children, which ensures a fair division of assets while allowing your business to continue functioning without interruption.
Farming families have specific needs and goals, so it is important to contact an estate planning professional well versed in the unique challenges posed by farms. It is never too early to start planning for the future. Having a sound estate plan in place will provide you with the peace of mind that comes with knowing your emotional and physical investment will continue on long after you’re gone.
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