One of the most difficult issues in estate planning is the family farm.
I can relate to the emotions involved. I grew up on a dairy farm with an iconic white frame farmhouse still prominent on East McCarty Street. It’s noteworthy that I have no ownership interest anymore, but I am proud of what my nephew and his wife have done to preserve it.
Parents often want the farm to “stay in the family.” Some children live close by and devote lots of sweat equity; others have relocated far away and will never be active on the farm. Here are several things to keep in mind as you work on this important component of your estate planning:
- Ownership by multiple family members will be hard in the next generation (your children); and it will be virtually impossible for the following generations (your grandchildren and great grandchildren). Someone or some small group will likely end up with the farm. And that’s ok!
- You want to be fair with all your children, so if all of them do not inherit the farm, you will want to keep things as equitable as possible. My favorite motto is “the number one goal of estate planning is to keep the family together over the holidays.”
- Putting a value on a farm that is going to just one or several of the children can be tricky. Remember, farms typically are not “cash cows” (sorry for the livestock analogy). If we use “fair market value,” it is almost impossible for the heirs to borrow money from a bank and make it work economically. Sometimes we can use a low value but protect the other children with Rights of First Refusal. Sometimes we can allow the farm heirs to pay their siblings over time at very reasonable interest rates. We can keep the non-owners involved with documented hunting and fishing privileges.
Family farms are great traditions that require careful planning. We urge clients to be realistic with their expectations and sensitive to the different perspectives of their children. And have the discussions now. Often we can help as mediators and counselors and not just technicians.