Over the years many farmers and farm families have faced challenges with their distribution plans and passing along their farmland for future generations. There isn’t a clear-cut solution for each farm family and that is why it is important to start the estate planning process now with your attorney to best protect you and your families’ futures. Let’s look at a few solutions that could be considered for estate planning for farm families.
Determining your assets succession
A good first step would be to outline your assets and create a chart that shows what inheritance the farming heir and other beneficiaries would receive. Then from there you can make changes to your assets to divide out who gets what in the most equitable way (i.e., farmland, life insurance, investment etc.). This a great method to start with especially if you have some beneficiaries who plan to continue with the farming business and others who do not plan to do so.
It also isn’t a bad idea to have an open conversation with the farming heir to let them pick what assets they want after you have decided a set percentage that will go to the farming heir. Then if there are faming assets remaining after their share you can allow them the opportunity to buy those from the other beneficiaries.
Valuing Farmland with Three-Step Appraisal Process
Many estate planning conflicts can arise when the valuing of farmland is involved. A method to lessen conflict regarding land would be to use a three-step appraisal process. The first appraisal is obtained by the trust or the estate. If a beneficiary disputes this appraisal value they may obtain or pay for a second appraisal. The first and second appraisals are then compared to see if close to a true value was reached. If the values of the first and second appraisal are significantly different, then a third appraisal can be conducted.
Setting Up an LLC to Own Farmland
If you are going to have multiple beneficiaries owning land together setting up an LLC can be a preferred method. The LLC eliminates the possibility of partition which allows the ability for any one owner of the land to force the sale or division of the real estate. When an LLC owns the land, a partition cannot take place.
If setting up an LLC sounds like a good option for keeping the land in the family but you don’t want to add another entity, such as an LLC, to manage, you have the option to put the LLC into a trust.
Long-term leases are another way you can try to keep land in the family for at least some period of time. This can be done by putting provisions into the trust that make the inheritance conditional upon a long-term lease. This method divides the assets out to be fair but uses long-term leases to keep the land available for the farming heir. The time frame of the leases can be made out to what you prefer up to 99 years or while the heirs are actively farming.
Transitioning your farm to the next generation doesn’t need to be complicated. We are here to walk you through each step and tailor plans to meet you and your families’ induvial needs. For help on starting the process of your farm estate plan contact Goosmann Law Firm today.