Indiana is full of family farms. In fact, the Hoosier state has more than 50,000 family-owned farms. Even in the 21st century, many family farms are passed down from one generation to the next. So, it’s crucial that farmers have a good estate plan and succession plan so that those who want to keep up the family tradition of farming get ownership of that land.
The U.S. Department of Agriculture (USDA) estimates that the average value of larger family farms was about $4.5 million in 2014. That’s a significant amount of money when it comes to estate planning. Many times some siblings are more interested in keeping the farm than others.
Here are some tips farmers should keep in mind when setting up their estate plan and succession plan:
If you’ve been running your family farm for nearly forty years, you probably are thinking about when you’ll retire. You should begin having conversations with your family members to see who might be most interested in farming your land after you retire. Figuring out how the job of maintaining farm operations is a big one and you likely could be splitting that responsibility between a few people.
You can set up a successor trust in case you become incapacitated before you’ve passed on ownership of the family farm to someone else. The trust allows you to name who will be farming your land in case you experience sudden severe illness, or you are diagnosed with a debilitating disease, such as Alzheimer’s or dementia.
If you have children from two different marriages, you also can make sure children from your first marriage are part of the succession plan if they want to be.
Many families decide to transfer ownership of their family farms when one generation retires. It gives farmers’ children the chance to buy their parents out and for the proceeds of the sale to be incorporating into an estate plan and divided among heirs accordingly.
However, children also can buy the family farm after their parents die, eliminating the capital gains tax. Sometimes, parents establish a set price for the farm so that no matter how long they live, their children will get it for that set amount.
Of course, some families sell their farms at some point. Each family has different circumstances that lead to that decision. Still, with a full estate plan, farmers can make sure they’ve done their best to pass their farmland on to the right owner.