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Friday, November 11, 2016
Estate Planning For Farmers | The Importance For Both Farm and Family
Summary: Family farmers, like other small business people, have some of the greatest needs for careful and complete estate planning. A proper plan can help you provide for your family and for the seamless transition and continued operation of the farm. This way, you can have the peace of mind knowing that you’ve provided for both the loved ones and the land that you’ve dedicated your life to.
Family farmers represent the backbone of the American agricultural economy. They are hardworking and family-oriented. They may also, however, come from humble backgrounds and may not realize that the success of their family farming business gives them a great need for detailed estate planning, even though it definitely does.
Estate planning for a farm family can achieve many benefits. One of the chief benefits is to ensure the continued and uninterrupted operation of the farming business. To accomplish this goal, it is important to identify who you want to take over the farm after you die, and also make sure that the person you’ve identified is interested in taking on that responsibility. That’s why, with farm families, as with so many families, detailed and honest communications between you and your loved ones is a necessary precursor to estate planning. With proper communication, you can make sure that everyone is on the same page when it comes to handing down control of the farm’s operations.
Once you’ve decided on the “who” part of your plan, you and your estate planning attorney can get to work on the “how” part. Working with a knowledgeable attorney is important, because there are lots of varieties of estate plans that can be dangerous for farming families. For example, let’s assume that, as one of your goals, you want to save your loved ones the time, stress and expense of probate. One strategy that can avoid probate, which some people use, is to deed over the farm to the person who will to take over, while retaining a life estate for yourself. This probably will succeed in avoiding probate but, if your farming business has been successful enough that avoiding death taxes is another necessary goal, this plan may come up short. Using this plan will place the full value of your farm in your gross estate for Federal Estate Tax purposes and, depending on your circumstances, may leave your loved ones with a huge tax bill.
You may be thinking, “The Federal Estate Tax exemption is so high, surely I don’t need to worry about that.” This can be a mistake, especially if you own a large farm. Depending on your acreage and the quality of your soil, your farm, if it is large, could by itself realistically have a value that clears the current exemption levels. What’s more, if your neighbors succeed in selling their farmland for high amounts, that may raise the “fair market value” of your land and make the FMV of your farm jump by millions of dollars very abruptly. In other words, it is important to create a plan that takes the potential risk of death taxes into consideration and, once you’ve put that plan together, to review and update it regularly to factor in any changes in death tax laws.
Another plan that some farmers might use to avoid probate is to “add” to the farm’s property deed the name of the child whom they want to take over upon their death. Again, this can avoid probate but potentially opens up many other risks. That child is now a full and current co-owner, which means that, if he becomes liable for a court judgment (such as an auto accident or a divorce,) the farm could be taken away from the family in order to satisfy this legal judgment. A proper plan can give you benefits of probate avoidance while also ensuring that you do not open yourself up to other pitfalls.
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