Not all that long ago farmers and ranchers were a common sight across the majority of the United States. For the better part of the 20th century, however, their numbers dwindled. In recent years, however, there has been a resurgence in small, family farms. If you own a family farm there is a good chance it has been in your family for several generations. If you hope to keep it in the family when you are gone, you need to plan ahead by including your family farm in your estate plan. Estate planning in general becomes even more important if you own any type of small business because passing down a small business to the next generation can be problematic. In fact, the majority of small businesses fail to make a successful transition to the next generation, in large part because of a lack of proper planning on the part of the patriarch or matriarch of the family. Estate planning for farmers is far more important than it is for the average small business because of the unique challenges farmers face. To ensure that your family farm makes it through the transition stage successfully, you should start working with an experienced Illinois estate planning attorney now.
Challenges a Family Farm Faces When the Patriarch/Matriarch Dies
Although every family farm is unique, and no two estate plans are exactly alike, there are some common issues that family farms face that can ultimately prevent them from successfully making through the transition to the next generation.
- Structure – many family farms have no formal legal structure. By default, that makes the business a sole proprietorship. If your family farm is a sole proprietorship you need to consider making a change. Operating as a sole proprietor may work fine during your lifetime; however, it can create tax problems as well as practical problems with changing over the ownership when you die. As a sole proprietor, all of the business assets are legally considered your property and must, therefore, go through the probate process with your other estate assets. As you may well imagine, this can be problematic if the business needs to continue to operate during the probate of your estate.
- Communication – a surprising number of farmers fail to take the time to actually talk to their children and find out if their kids even want to continue to run the family business. Never make that assumption. If your children decide they don’t want the business after your death, and you did not have the opportunity to make alternative plans for the business, a significant percentage of the fair market value of the farm may be sold as a result of a last minute sale.
- Liquidity – family farmers are said to be “asset rich and cash poor” small farmers tend to lack liquidity which can be a huge problem if the estate incurs federal and/or state estate taxes.
- Knowledge/Training – even if you have discussed taking over the farm with your children and at least one of them is interested, if you haven’t taken the time to actually train them how to run the day to day operations and how to manage the business, the farm remains at risk of failure.
What Estate Planning for Farmers Strategies Can You Use to Protect Your Family Farm?
Understanding some of the most common challenges a family farm might face when trying to make the transition to the next generation is only the first step in protecting your family farm. The next step is to include estate planning strategies into your estate plan that will protect your farm and help pave the way for the next generation to take over the business. Choosing the right legal entity for your farm is a good start. One popular option for family farms and ranches is a family limited liability company, or FLLC. An FLLC offers liability protection and tax advantages that other options lack. In addition, and FLLC provides an excellent mechanism for turning over the business to the next generation a little bit at a time. Another important step is to create sufficient liquidity. This may be as simple as adding additional life insurance to your estate plan; however, if not done, it can result in the loss of crucial business assets because of the need to raise cash to cover the tax bill when you die. Finally, sit down and talk to your children and find out if they truly want to run the family farm. If they do, create a training program to make sure they have some idea how to actually run the business when they take over after your death.
If you have questions or concerns regarding estate planning for farmers, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.
Latest posts by Bob Nash, Partner (see all)
- Steps Involved in Creating a Trust - May 21, 2019
- Estate Planning Attorneys Remind You to Include Your Pets in Your Plan - April 30, 2018
- Living Trust Attorneys Explain How to Modify or Revoke a Trust - January 5, 2018