As with any business, planning for the future is absolutely necessary when you are running a farm. Selecting the right legal structure is a central part of that planning process.
This decision can have significant implications for taxes, management and the transfer of assets. In particular, your choice of business structure will affect how farm assets will pass to your beneficiaries as part of an estate plan.
Choosing a business structure
There are multiple business structures to consider, each with its own operational advantages and estate planning implications:
- Sole proprietorship: The simplest form of business structure. The owner has sole control and may easily pass on ownership, but it comes with unlimited personal liability.
- Partnership: In a partnership, multiple individuals share ownership of the farm. With a well-written estate plan, it can become possible to pass on only your share of ownership to a beneficiary.
- Limited liability company: As with a partnership, operating as an LLC enables you to pass on your share of farm ownership to a beneficiary. There are also clear liability benefits and tax advantages. However, daily operations and estate planning matters may require additional paperwork and fees.
It is important to choose the business structure that works best for your unique situation and the future of your family.
Using a trust for farm estate planning
While not a business structure, a revocable trust is a valuable legal structure for estate planning. A trust allows the farm owner, as the grantor, to transfer ownership of assets to a trustee. The trustee then manages those assets for the benefit of the trust’s beneficiaries. Trusts can provide flexibility in distributing assets and may offer tax benefits, but setting up and administering a trust may require professional assistance.
In conclusion, choosing the right legal structure for farm estate planning requires careful consideration of various factors. Making an informed decision requires careful consideration, but it is a necessary part of the estate planning process.
