Deciding how to distribute or divide the family farm, ranch, or land is not an easy task. Perhaps not all of your children want the farm, determining value is tricky, there are loan and subsidy programs to preserve, there are tax complications, and there are asset protection concerns.
So where should you start? Here are a few questions to point you in the right direction.
- Do you own the farm in your own name or as a separate entity?
- If you own the land in your own name, then at the very least be certain you are carrying sufficient premises and personal liability insurance to cover the kinds of accidents or potential lawsuits most commonly associated with your type of property, equipment, personnel, and agreements.
- For best liability protection, consider owning the land, equipment, leases, and other related assets in a separate legal entity, such as an LLC or S-Corp. This separation between you as a person and your land as a business protects personal assets from business liabilities and protects business assets from personal liabilities.
- Can you keep the farm while becoming eligible for VA pension or Medicaid?
- If you are a war-time veteran, you might become eligible for income benefits called Aid and Attendance, but only if you meet certain asset requirements. The amount of land you own and the value of your farm might keep you ineligible unless you take certain steps ahead of time. With the right planning, you can protect your farm and remain eligible for your benefits.
- For all of us, the likelihood is that some period of long-term care is in our future. The cost of care continues to increase, and Medicaid qualification becomes more strict all the time. As with VA benefits, advance planning can keep the family land in the family while allowing you to qualify for assistance to pay for the rising costs of long-term care.
- What are your succession options?
- Sell the farm to the child who wants to work it during your lifetime.
- This removes the complication of dividing the land at your death, but it introduces a few potential complications, even if we assume the child has sufficient assets to purchase the property.
- While you can take the proceeds of the sale and incorporate them into your estate to be divided more easily, you might have introduced some significant tax complications, such as capital gains, depreciation recapture, income, and Medicare surtax.
- Make provisions for a sale to an heir at the time of your death.
- This allows the heir to take advantage of rules that give them a "step-up" in basis and avoid capital gains taxes.
- But it might put the purchasing heir at a disadvantage, as the value of the farm might significantly increase until the time of your death, meaning a much higher purchase price than if they purchased during your lifetime.
- You can address this, potentially, by specifying a purchase value in your estate plan, or crediting the purchasing heir's "sweat equity" during their lifetime as part of the purchase.
- However, depending on your priorities for other heirs, it may be important to balance this pre-determined value for the purchasing heir with the value of other assets received by non-purchasing heirs.
- Make provisions to split the farm among all of your heirs.
- This has the advantage of being the "simplest" option to plan for during your lifetime but one of the most difficult to administer at your death.
- This option leaves the division of the land, farming equipment and vehicles, leases, and other related assets to your heirs, who may or may not be in agreement about determining value, may not work well together, may allow in-laws to exert more influence than you are comfortable with, or may highlight tensions among family members.
- It is more complicated on the front-end to provide a way through or around these complications, but, in our experience, it goes a long way toward preserving value and family harmony.
- Make provisions for sale to a third-party.
- If none of your heirs are interested in the farm, you may have a friend, neighbor, or other acquaintance who you wish to receive priority for a future purchase.
- If you have an existing contract, or if you wish to grant a right of first refusal, it is imperative that clear and detailed provisions exist in your plan in order to safeguard your wishes, ease of administration, property value, and family peace.
- Are there any special planning considerations for agricultural land?
- If farms, ranches, or other agricultural properties are part of your asset picture, your planning must include sufficient direction and authority for environmental issues, such as regulatory compliance, assessments, site monitoring, remedial action, and others.
- Additionally, it is best to have explicit authorities for land management, including hiring labor, buying or selling livestock, holding capital for improvements, and purchasing equipment.
- Lastly, there must be sufficient powers to preserve government subsidies, loan programs, grants, or any other benefits that allow for continuous management or provide ongoing income or necessary injections of capital.
In our experience, landowners are a self-sufficient and private group of folks who are hesitant to work with lawyers or rely on others for advice. We understand the need for caution and the desire for autonomy. It is our sincere desire to earn your trust and be a valuable resource for you and your families. If you would like to learn more about the issues discussed in this post, or anything else related to estate planning generally, we would be happy to schedule a time to meet with you, your family, or any other trusted advisers at no cost.
Here's the stuff we always put at the end:
If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 (in the Tulsa area) or (405) 358-3848 (in the OKC area) or send an email to firm@tallgrassestateplanning.com to set up a free consultation, either in person, video chat, or phone call.
Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. Your best bet, always, is to speak with an attorney about your questions, assets, concerns, and needs.
