Estate planning takes on a heightened importance for anyone who owns a family business; however, if that business is a family farm you face several unique concerns that other small businesses may not need to consider. To make sure your farm is safe, the Grand Forks estate planning attorneys at German Law | Wealth discuss how succession planning can help protect your farm.
Estate Planning Is Different for a Family Farmer
Although a family farm is a business, just like any other business, there are some unique concerns for a family farm when it comes to estate planning. Unlike many other businesses, for example, a family farm often lacks liquidity. On paper, your farm may be worth a small fortune; however, the value of your farm may be tied up in land, equipment, livestock, or crops. Another issue with family farms is the difficulty in transitioning to the next generation. It is not usually as simple as passing down assets to your children after your death. The good news is that by incorporating a business succession component geared toward family farmers in your estate plan, you can address these issues and make sure your farm is protected both while you are alive and after you are gone.
Questions to Consider
As the owner of a family farm, you have undoubtedly invested considerable time and money into making your farm a profitable enterprise. Is that investment safe? To find out, ask yourself if you can answer the following questions:
Business Succession Planning for Your Farm
Business succession planning for your farm should begin with deciding whether the business is to be passed down to the next generation or sold upon your incapacity, retirement, or death. Making that decision early allows maximum planning time for the transfer of ownership or to ensure a profitable sale.
If the next generation will carry on the farm, start the transfer as early on as possible. Get your successor involved early so family members, employees, and clients/customers are comfortable with the change in management. In addition, you may wish to create a Family Limited Partnership (FLP) that allows you to slowly transfer your legal interest in the farm while maintaining control over the day-to-day operations. An FLP also offers some important tax advantages that you may wish to consider.
If you plan to sell the business, consider entering into a Buy-Sell agreement. This is a legally binding agreement with someone to purchase the business upon the occurrence of a specific event, such as your incapacity, retirement, or death, at a predetermined price or using an agreed upon method of valuation. The benefit of having a buy-sell agreement in place is that you know your loved ones will receive the true value of your financial investment in the farm.
Finally, make sure you plan for the possibility of incapacity within your business succession plan. Using a revocable trust is one way to do so; however, your estate planning attorney may offer additional strategies and tools that work better in your situation.
Contact a Grand Forks Succession Planning Attorney
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to protect your family farm, contact the Grand Forks estate planning attorneys at German Law | Wealth by calling 701-738-0060 to schedule an appointment.