The reason to address this sooner rather than later is that bequeathing a farm is a process, not an event. It should be a gradual transition that allows ample time to resolve unexpected and inevitable issues, while it facilitates the transfer of knowledge crucial to keeping the farm going when management changes.
It’s writing up a full financial assessment of assets, revenue, debts and future capital needs. The second is harder still: getting your family together and discussing who gets what. This step can expose deep-rooted feelings, although the assessment should help keep the talks grounded in actual value, not sentimental value.
You don’t have to moderate these conversations yourself. You can ask your estate planning attorney for help. He or she may know of creative succession strategies.
One idea is to create two limited liability companies (LLCs): one for the land and another for the business, animals, and equipment. This will convert assets to units or shares that can be given or sold to a successor, making the transfer of ownership much more straightforward. Parents who are ready to retire could sell the business to a child for a nominal amount and the business could lease the acreage from the parents to give them retirement income.
Parents who plan to give shares should start doing so immediately to avoid burdening their children with tax liabilities. You can gift up to $14,000 annually to each individual. That amount goes up to $15,000 in 2018.
In addition, if the entire enterprise isn’t overly profitable, consider the cash-generating possibilities of a conservation easement. That’s where a land trust pays the farmer for an easement, which restricts development (and decreases the property’s assessed value) while allowing agricultural uses.
Regardless of your particular situation, your farm and your family will benefit from speaking with an estate planning attorney who has helped other farm families, move through this process. The sooner you start planning for the future, the more time you have for corrections and adjustments.
Reference: Modern Farmer (October 20, 2017) “Agronomics: Estate Planning”