Why You Need an Estate Plan if You Own a Farm, Ranch or Land
The following are some of the most serious issues that can arise when the owner of a farm or ranch dies, or becomes disabled or incapacitated, without an estate plan:
1. The animals living on your property may be severely neglected or die. If you die suddenly or if you become ill and have not legally appointed someone to act on your behalf, it could be days, weeks or even months before an executor is appointed to administer your estate or a conservator is appointed to manage your affairs. In the meantime, your farm animals could go without food, water or shelter. There are numerous reported cases of animals starving to death in these situations.
One of the most important objectives of estate planning for owners of farms and ranches is to ensure that farm animals and pets receive continuous care after the death or disability of the owner. By executing a durable power of attorney for finances, you can ensure that someone you trust is legally authorized to care for your animals immediately if you are injured or become ill. By using estate planning methods such as a trust, you can avoid the long delays associated with probate and make sure your estate passes to your beneficiaries promptly after your passing. In the meantime, the trustee of your trust will be authorized to pay the costs of caring for your animals.
2. Family members or employees who live on your farm or ranch may be forced off the property in the event of your death or disability. Perhaps your children, grandchildren, siblings or parents live on your land. You may have employees who live on your farm or ranch as part of their pay. If you die without a will, they could be forced off your land if they are not the legal heirs to your estate. If you become incapacitated and the court appoints a conservator to manage your affairs, the conservator could force family members or farm workers to vacate the property.
If you want certain people to be able to stay on your property in the event of your death or disability, especially if they are people you rely on to run your business, you need to execute estate planning documents to make this happen. By executing a will or establishing a trust, you can control who will inherit your property. By executing a durable power of attorney, you can grant a relative, friend or trusted advisor the right to oversee your property and finances if you are in the hospital or a nursing home for an extended period of time.
People who own farms, ranches, or large parcels of land also face a variety of other estate planning issues, such as:
Preventing a Forced Sale of the Property
There are several circumstances that may result in the property being sold rather than distributed to the owner’s heirs. Creditor claims, estate taxes, inheritance taxes, and the costs of settling the estate may require property to be sold, especially if there are insufficient liquid assets in the estate to pay these expenses.
One estate planning strategy that may be used to add liquidity to the estate and prevent a forced sale is the purchase of life insurance or creation of a life insurance trust. In addition, if estate taxes are a concern, the owner of the property may want to use an annual gifting strategy to reduce the size of the owner’s taxable estate.
Planning for Heirs Who May Want to Sell Their Inheritance
An owner of a farm or ranch must consider that heirs who inherit the estate may have different objectives. Some of the heirs may want to sell their share of the estate, while others may have an interest in continuing the family business. If one heir wants to sell property he has inherited, there may be little anyone can do to prevent it, especially if the other heirs do not have the funds to buy the property being sold.
There are many reasons why the owner may want to prevent shares of the estate from being sold after his or her death. The owner may want a child or grandchild to take over operation of the farm or the owner may want to prevent the land from being sold to developers. If the heirs are very young, the owner may want the business to be managed by a third party until the heirs are old enough to decide whether they want to hold on to the property. Whatever the owner’s objectives, estate planning is critical if the owner wants to prevent the property from being divided and sold by heirs who inherit the estate.
Farmers, ranchers, and landowners can benefit from a variety of different estate planning structures, depending on the owner’s objectives and the assets involved. For example, some farmers establish family limited partnerships, corporations, or limited liability companies. Others use trusts as part of their estate plan. In addition to preventing the family business from being broken apart, other complex issues must be addressed such as tax planning, liquidity, and ongoing management of the business. The owner should consult an estate planning attorney and a CPA, both of whom should have experience with agricultural businesses and land. Simple estate planning forms or do-it-yourself approaches to wills and trusts should be avoided with these types of estates. Use a professional who can develop the best strategy for your situation.
If you are the owner of a farm, ranch or large parcel of land, it is very important to make an estate plan. The consequences of failing to make a will, power of attorney or other estate planning documents can be far more serious when this type of property is part of your estate than when a house or condo is involved.
Preserve Your Land for Future Generations
If you own a farm, ranch or other land you want to preserve for the benefit of future generations, you may want to use a conservation easement as part of your estate plan. In fact, several estate planning concerns can be resolved through the use of a conservation easement. To learn more about the benefits of placing a conservation easement on your property, visit our conservation easements page.
Choose Your Executor or Trustee Wisely
The person you appoint as executor of your will or trustee of your trust can have a significant impact on the amount of inheritance your heirs receive. During the probate of an estate or administration of a trust, the executor or trustee must make many decisions regarding the sale of estate property and the payment of debts. The executor or trustee has a great deal of discretion to determine the method of sale and the price at which assets are sold. For example, if your estate includes farm equipment, your executor may hold an estate auction and sell the equipment for whatever price is offered at the auction. There may be better methods of selling the equipment which would result in a higher price, but if the executor is not familiar with the farming business, he or she may be unaware of alternative methods of selling the equipment.
Whether selling land, crops, equipment, antiques, or vehicles, the judgment of the executor or trustee can greatly influence the dollar amount received. If you are concerned about protecting your child’s inheritance or the inheritances of other beneficiaries, appoint an executor or trustee whom you believe will exercise sound judgment. In addition, if you fail to make a will, the executor of your estate will be chosen according to state law and may be appointed by the probate court judge. For more information, see our pages on Wills and Trusts and Probate.
Succession Planning
One of the best books on succession planning and estate planning for farmers is Legacy by Design: Succession Planning for Agribusiness Owners. Written by a certified financial planner, it also provides financial and retirement planning guidance for owners of farms and related types of agribusinesses.
. Written by a certified financial planner, it also provides financial and retirement planning guidance for owners of farms and related types of agribusinesses.