From a legal perspective a family farm or ranch is a business; however, anyone who owns and operates a family farm or ranch knows that it is much more than just a business. A family farm or ranch is a way of life, an emotional investment, and a legacy that you undoubtedly want to pass down intact to future generations. Accomplishing this goal though requires planning and preparation because of the unique financial, legal, and even emotional issues that are part of passing down a family farm or ranch.
Farming and ranching operations often face challenges that other business do not. These challenges can become significant obstacles when it comes time to pass down the farm or ranch to children or grandchildren. One of those challenges/obstacles is that farms and ranches often lack liquidity. The business may be valuable on paper but it may also be heavily in debt. Much of the value may also be in equipment, livestock, or crops. This can create a problem upon the death of the owner if the estate owes estate taxes and there are no liquid assets available to pay the tax. Careful estate planning can plan for this possibility. In addition, family farms and ranches are treated differently for estate tax considerations because of their unique nature. The rules regarding payment of estate taxes are far more lenient, for example, for operating farms and ranches than for other business. Understanding the rules is critical so that your beneficiaries can take advantage of them when the time comes.
The other big challenge/obstacle to family farming or ranching is deciding exactly who to pass the business down to and then figuring out the best way to accomplish the transfer. Odds are good that not all of your children and grandchildren want to carry on the farming or ranching operation. For those who do it is usually best to begin the legal transfer of ownership as well as the day to day operations long before you die. Not only are there tax advantages to beginning the transfer of ownership prior to your death but it also makes sense from a business perspective. Even if your children have worked the farm or ranch with you for years they need experience actually running the operation as well. There are several ways to accomplish this. The only way to determine which strategy will work best for your particular farm or ranch is to discuss the options in detail with your estate planning attorney.
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