To the average American it may seem as though family farms and ranches are all but a thing of the past; however, family owned and operated farming and ranching businesses have seen a comeback in recent years as consumer awareness has increased with regard to the practices of many industrial size ranching and farming operations. If you own a family farm or ranch, and you plan to pass the business down to the next generation, it is imperative that you plan accordingly. A Grand Forks estate planning attorney at German Law Group explains why estate planning is crucial for farmers and ranchers.
Estate Planning Is Different for a Family Farmer or Rancher
Estate planning takes on a heightened importance for anyone who owns a family business; however, if that business is a family farm or ranch you face several unique concerns that other small businesses do not typically encounter. The most common, and often most problematic, is the tendency for a family farm or ranch to lack liquidity. On paper, your farm or ranch may be worth a small fortune. The problem is that most of that worth is likely tied up in land, equipment, livestock, or crops. As long as you are alive and running the operation, that may not present a significant problem; however, when it comes time to probate your estate after your death, your estate may owe a significant debt to Uncle Sam in the form of federal gift and estate taxes based on the value of your estate. If your estate lacks liquid assets with which to settle the debt owed to Uncle Sam, estate assets may have to be sold to cover the tax debt. That, in turn, could put the family farm or ranch out of business.
Estate Planning Is Essential
The good news is that the issue of estate liquidity can be resolved with proper estate planning. In fact, proper estate planning can go a long way toward ensuring that your family farm or ranch makes a successful transition to the next generation. In the alternative, it can also ensure that you and/or your loved ones recoup not just your investment in the business, but the fair market value of the operation, upon your retirement, incapacity, or death if you do not wish to pass the business down to your children. For your estate plan to work as intended, however, you must start planning early on and you will need to update that plan on a regular basis to account for routine changes and unexpected life events.
Every estate plan is unique; although, there are some estate planning tools and strategies that are commonly found in the estate plan of a family farmer or rancher. For example, life insurance can be used to ensure that your estate has sufficient liquid resources with which to cover any gift and estate taxes due upon your death. Incorporating a business succession planning component into your estate plan is also advisable for anyone who owns a small business. In the case of a family farmer or rancher, that plan should foresee, and plan for, the transfer of ownership, over time, to the next generation. In the alternative, it should include a Buy-Sell agreement, of something similar, to guarantee that you (or your loved ones) will receive the fair market value of your interest in the farm or ranch in the event you must sell it at a later date. Finally, it is important to plan for both passing down the day-to-day operation of the farm/ranch and the legal interest in the operation. Neither should be done in a hurry. Just as you will likely spend years teaching your children how to run the farm or ranch, it is often advantageous to pass down your legal interest in the business over time as well because you will likely see tax benefits by doing so.
Contact Grand Forks Estate Planning Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about estate planning for farmers and ranchers, contact the Grand Forks estate planning attorneys at German Law Group by calling 701-738-0060 to schedule an appointment.