Family farms have been the backbone of the American economy for centuries. Despite efforts by big farming to take over the farming industry, family farms have survived – even flourished in many cases. In reality, it isn’t big farming that poses the greatest threat to family farmers. Poor estate planning – or a complete lack of estate planning — is what truly creates the biggest threat to family farms. The family farm can withstand droughts, recessions, and competition from the big guys, but if you fail to create a well thought out estate plan the entire farm could be lost when you die. Between failing to plan for the impact of estate taxes, and not properly preparing the next generation to take over the management of the farm, your family farm could collapse in short order after you are gone. One estate planning tool that can potentially help ensure your farms continued existence long after you are gone is a trust. There are several reasons why the use of trusts for farmers makes sense and should be considered as part of your comprehensive estate plan.
The Problem – Why Farmers Often Lack a Good Estate Plan
To be successful as a family farmer these days you have to work hard, understand the business, and truly want to be a farmer. The average farmer knows how to farm the land, grow crops and tend to the animals, but may not know much about estate planning. Of course, the average person in any business doesn’t know much about estate planning until they take the time to learn. Farmers often operate on the assumption that they will simply leave the family farm to the next generation in their Last Will and Testament and that’s that. Unfortunately, gifting a farm in a Will, without further estate planning, is often a recipe for disaster.
One of the most common problems with simply gifting a farm in a Will is that the estate may owe estate taxes as a result of the transfer of wealth and not have the ability to pay them. Farms are often cash poor; however, the value of the farm may be much higher than a farmer realizes because of the value of the land, equipment, crops, and livestock. The problem is that the value of the farm is all tied up in the land, crops, equipment and livestock, meaning the estate has insufficient liquid assets available with which to pay estate taxes. All too often, the only way to pay the tax bill is to start selling the farm’s assets – the land, equipment, crops, and/or livestock. Of course, without the assets, there is no farm.
The Benefits of Trusts for Farmers
If you own a family farm, you should discuss the benefit of creating a trust with your North Dakota estate planning attorney. A trust can provide a number of estate planning benefits to farmers, including:
- Removing assets from your estate, thereby diminishing the value of your taxable estate for gift and estate purposes.
- Providing management and oversight for the farm assets during the period immediately following your death through the appointment of a competent Trustee.
- Protecting the farm in the event of your sudden incapacity as well as providing a mechanism by which control of the farm can automatically shift to the person of your choice should you become incapacitated.
- Allows ownership of the farm to be distributed to your beneficiaries over time instead of all at once to give them time to “learn the ropes.”
- Can provide a continued stream of income to a spouse and/or provide a spouse with the legal right to continue to live on the farm after your death, even if the farm has been passed down to adult children or other beneficiaries.
To ensure that your family farm makes a successful transition to the next generation after you are gone, sit down with your estate planning attorney and discuss how your estate plan might benefit from the addition of a trust.
If you have additional questions about trusts for farmers, contact the experienced North Dakota estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.