Top 5 Most Common Family Farm Estate Planning Mistakes
October 29th, 2021
Estate planning is important for all adults, regardless of assets. That said, certain situations call for more specialized planning than others; family farm estate planning is definitely one of those. A family farm is a source of income, a significant asset, and a legacy from one generation to the next. Furthermore, the direction planning to take depends heavily on the inclinations and needs of both the farmer and his or her intended beneficiaries. As with a farm business itself, estate planning for a family farm has a lot of moving parts. Let’s talk about some of the most common mistakes farmers make when planning for the future of their farms.
Family Farm Estate Planning Mistake #1: Failing to Know What You Own and What You Owe.
Before making a plan, you must have a complete inventory of all farm assets, including farm land and buildings, machinery, equipment, fencing, livestock, grain and feed inventories, accounts receivable, and, of course, bank accounts. In addition, it is critical to understand the farm’s liabilities: what is owed, and to whom.
You can only leave someone else what you own. That sounds obvious, but many farmers fail to review asset titles, beneficiary designations, and even the ownership of bank accounts to ensure that the distribution laid out in their estate plan lines up with the reality of ownership. For instance, if your land is titled jointly with an estranged sibling, and your will leaves the land to your three children in equal shares, who gets the land? Your children will no doubt be chagrined to learn that it goes to your sibling.
In addition to knowing who has legal ownership of certain assets, you must also know the value of those assets. This is essential not only in order to avoid leaving your beneficiaries a pile of debt, but to ensure that beneficiaries are treated fairly if some continue to work the farm and others don’t.
Family Farm Estate Planning Mistake #2: Failing to Consider Individual Personalities, Needs, and Family Dynamics
A farm is not an asset like a stock portfolio or a bank account that has an easily determined value and can be easily divided among multiple beneficiaries. It is very likely that not all of your intended heirs or beneficiaries will want, or be able, to continue the farm business. In many farm families, some children have continued to work on the farm alongside their parents, devoting their energy and resources to the family business. Others have pursued different careers. If the farm is your primary asset or source of wealth and you want to treat all your children equally, how will you structure your estate plan so that the farming children can continue with their livelihood, while the others receive an equal inheritance?
Another potential problem that can arise occurs in blended families. If a farmer leaves all farm assets to a spouse from a second or subsequent marriage, when that spouse dies, they can leave those assets to their children, shutting out the farmer’s children from a previous marriage, unless estate planning measures are taken to avoid that outcome.
In short, estate planning is for people. Make sure your estate planning attorney understands your family dynamics, including any conflicts that could make it difficult for beneficiaries to work together. And communicate with your beneficiaries so that they know what to expect after your passing.
Family Farm Estate Planning Mistake #3: Failing to Plan for Liquidity
While family farms usually include significant assets, most of those assets may be illiquid: land, machinery, growing crops, equipment. Unfortunately, death is expensive, and so is running a farm between the date of the farmer’s death and the settlement of their estate.
Simply put, you must ensure that your beneficiaries have access to funds to pay for your funeral, pay taxes, pay for extra help to keep the farm going if needed, pay outstanding debts and purchase supplies.
If you fail to plan for your family’s need for cash, they may be forced to sell farm assets to quickly raise needed funds, perhaps for pennies on the dollar. The good news is that if you plan ahead, you have a lot of options, including life insurance, life insurance trusts, establishing lines of credit, or creating certain business entities.
Family Farm Estate Planning Mistake #4: Thinking Death is the Only Event to Plan For
You probably think of estate planning in the context of what happens to your family farm after your death. But what happens if you don’t “die with your boots on?” You may decide to retire and turn the farm over to other family members, in which case you will need a solid succession plan. Or you or your spouse may become physically or mentally incapacitated—not only unable to work, but in need of costly long-term care. You need to plan ahead for the possibility of nursing home costs, too.
Nursing home care in Ohio can approach (or exceed) $100,000 per year. Without advance planning, the need to meet those costs could devastate a family farm.
Family Farm Estate Planning Mistake #5: Not Working With an Attorney Who Understands Farm Transition and Estate Planning
Without a doubt, it is better to have an estate plan than not to. But as long as you are going to the trouble of thinking about farm transition and estate planning, why not work with an attorney who is familiar with the particular issues affecting farm families? An Ohio attorney experienced in estate planning for farms will guide you through the potential pitfalls unique to estate planning and farm ownership transfer.
You have spent your life building not only a farm business, but a legacy for the next generation. Do everything in your power now to make sure that legacy endures. If you have questions about family farms and estate planning, we invite you to contact Gudorf Law Group to schedule a consultation.