Estate planning is very critical for farmers. After all, farmers often don’t look at retirement the same way that other business owners do. They live on the farm, it’s been in the family for generations, and their plan is simply to transfer it down to their children. It’s more a way of life than a business that they are going to retire from.
However, failing to plan properly can make this process rather complicated. Here are some things that farmers should keep in mind when making an estate plan.
Does the farm need to be divided equally?
In a family with multiple children, it may be clear that one person is going to take over the farm. However, people will sometimes want to leave the farm to all of their children, stating that their assets should be divided equally. They don’t want to appear to be playing favorites.
But the problem this creates is that the successor then has to purchase the other shares of the farm from his or her siblings. This can be a significant financial hardship. If they don’t purchase those shares, then there can be issues about who actually gets to run the farm or make decisions for it. Making a plan in advance to address this can help significantly.
The farm can be a business
Another thing to consider is that the farm could be incorporated as a business, not just a family asset or real estate that the family owns. Some farmers will turn their farms into LLCs because this makes it easier for the successor to take over. It also helps to define ownership rights.
Using life insurance
Another tactic that will be used is that the owner of the farm will buy a life insurance policy. Say that someone has two children. They know that the value of the farm is around $1 million. They also buy a life insurance policy for $1 million. They can then leave the policy to one heir and the farm to the other, meaning that they are both getting an equal portion. But this circumvents some of the problems noted above because there won’t be any issues with ownership of the farm itself.
As you can see, this can be quite complex and it’s important to get the details right. Be sure that you know about all of the legal steps you can take to set up the plan.