Estate Planning Checklist for Farmers

Updated

In most professions, you don’t have to give special consideration to what happens with your job when you pass. However, for farmers, estate planning is an essential part of your job description. If you own a farm, ranch, or agricultural business, this article is for you. 

According to the U.S. Department of Agriculture, family-owned farms account for 97% of the country’s 2.1 million farms. That being said, only a reported 30% of these are successfully transferred to the next generation. The further you get down generational lines, the numbers become significantly smaller. 

What’s causing family farms to slip through the cracks? Much of the answer falls on estate planning. While most family-owned farms expect the next generation to take over, only a reported 23% have a legal plan in place. Like all things in life, a plan makes all the difference. In this guide, we’ll share everything you need to know about estate planning for farmers. 

Better yet, download our free estate planning checklist for farmers to take action today. The most important plan is the one you’ll actually create. Whether that means setting things up yourself or working with a local attorney, your farm depends on your preparations today. 

Jump ahead to these sections:

Why Is Estate Planning Important If You’re a Farmer?

If you or your family owns a farm, ranch, or agriculture business, estate planning can’t be an afterthought. Estate planning is when you take the time to legally detail what happens to your assets in the case of your death. Similarly, you’ll want a plan in place if you’re no longer fit to run the family farm yourself. 

Since a farm is a business entity, it passes similar to other types of businesses, though there are special things to keep in mind. The vast majority of farms don’t survive to the next generation not because there isn’t family interest, but because there isn’t an estate palan. Unfortunately, many family farms are lost due to failure to plan. While this sounds scary, it’s meant to serve as a reminder to start your own plan sooner rather than later. 

Farmers often feel attached to their land and see it as their legacy. This makes it important to establish a way to pass along that legacy. As small family farmers face increasing pressure from large, corporate-owned farms, having your land divided through intestacy can damage its ability to compete.

The good news is a solid plan doesn’t have to be complicated. Not only does this reduce conflict between families after your death, but it preserves your farm for future generations. Above all, it’s a time to reflect on what’s most important to you. 

Estate Planning Considerations for Farmers

It’s possible you’ve heard of other farms passing seamlessly through generations. In the past, this was much closer to reality. Unfortunately, times have largely changed. Farm succession is no longer as simple. Thanks to tax and regulation changes, you need to be prepared in advance. 

Have you ever heard the phrase ‘farms are asset rich and cash poor’? It’s often true. Though farmers have a lot of inventory, this can lead to a massive tax estate bill when transferring property to a new owner. By planning your farm estate in advance, you limit the effects of these taxes. 

When you die without a will or other estate planning, your probate estate passes according to your state’s intestacy laws. Intestacy laws can lead to the division of your estate between your spouse and other heirs, like children or grandchildren. Consider whether you want your operation to be passed along as a business to a single owner or group of owners, or whether you’re comfortable with the farm being liquidated to give your heirs cash or otherwise disposed of as they want. 

There are some important questions you’ll want to ask yourself:

 

  • Preparedness: Are future generations willing and prepared to take on the responsibility of running the farm?
  • Retirement: Are you properly prepared for retirement? This includes your financial security. 
  • Income: Is your farm generating enough income to support yourself in retirement as well as another younger generation?
  • Fair and equal: Transfering a family business to another generation isn’t always ‘fair and equal.’ Depending on your heirs’ involvement in the farm over the years, you might need to make important decisions. Dividing farmland, if at all, is no simple matter. 
  • Taxes: Of course, consider the tax implications. You do have to pay inheritance tax on agricultural land, and you also have to keep in mind the federal estate tax. Working with a local tax attorney can help you prepare for these added costs. 

 

 

 

What Is a Farm Trust?

The most common way to transfer a farm after death as part of an estate plan is through what’s called a farm trust. This isn’t actually a special type of trust, but it’s commonly referred to as a ‘farm trust’ by agricultural attorneys. Trusts are used for many things, including the transfer of property and businesses. 

There are several types of trusts:

 

  • Revocable living trust: A revocable living trust is one you can use both during life and death. You can manage your farm in case you’re no longer able to make decisions for yourself, such as if you suffer an injury. This is the most flexible option. 
  • Irrevocable living trust: Alternatively, this type of living trust cannot be changed, though it’s still used during the farmer’s life. 
  • Testamentary trust: Finally, this last type of trust is effective at the time of the farmer’s death. It’s usually created through a legal will, and it can minimize the tax burden. You can create a legal will online, or work with a local attorney. 

 

 

 

There is no way for farms to completely escape taxes during the transfer process, and this is where it gets tricky. Luckily, there are many tax breaks farmers can easily take advantage of if they qualify. 

Frequently Asked Questions: Estate Planning for Farmers

Are you considering including your farm in your estate plan? If so, it’s normal to have questions. These answers below should help put your mind at ease no matter your situation. 

How can you talk to a loved one who’s a farmer about estate planning?

It can be tough getting a farmer to admit that they won’t be able to work their land someday. As you approach the conversation, keep in mind that they likely have a deep attachment to their property and that working it makes up a large piece of their sense of self.

If you or another family member intends to take over a family farm, try to frame the topic as a way to preserve the farm through creating a plan to transition management and ownership of the land and other assets. Don’t wait until it’s too late to express your desire to run the family farm to your parents or loved one. 

How do you find an attorney specializing in estate planning for farmers?

Attorneys who practice in agricultural areas often advertise their experience with land transactions and agricultural issues. To start your attorney search, check your state’s bar association website. They usually have an attorney finding tool to help you look for attorneys in your area who practice certain types of law.

Ask your other land-owning friends or neighbors whether they’ve used an attorney and if they recommend them. The other professionals that you work with, like accountants or tax professionals, might have a recommendation as well.

Preparing Your Farm for the Future

If you’re a farmer or in a farming family, you know the importance of keeping the land protected as part of your legacy. There are a lot of huge advantages to starting your farm estate plan early. Not only can you keep your farm providing for your family for future generations, but you can also transfer your property quickly with limited tax burdens. 

Your farm is a part of your family’s story. No matter your plans, make sure you know what’s coming next. Farm estate planning doesn’t have to be complicated, especially if you start early. 

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