Farming or ranching is more than a means of livelihood – it is about preserving a legacy and unique way of life. An out of date or inadequate estate plan could result in a farm or ranch that has been passed down for generations ending up being sold and converted into non-agricultural use.
The subdivision of the family farm or ranch into residential lots or plowing under the soil to build the next mall or office building can be avoided. This blog post shares with you three common estate planning mistakes farmers and ranchers make and how you can help prevent them.
Mistake #1 – Failing to Plan
Farmers and ranchers have complex estate planning needs. They may have children who want to continue the farming or ranching business and children who do not. This makes it difficult for many farmers and ranchers to decide what to do, which may result in no estate plan being created at all.
Fortunately, you are in the ideal position to understand the family dynamics and wealth of your farming or ranching clients, and then assemble a team of experts (including attorneys, accountants, bankers, and insurance specialists) who can help create a plan that will work for their current situation.
Mistake #2 – Relying on Joint Ownership
Farmers and ranchers may believe that the easiest way to plan their estates and avoid probate is to own property in joint names with family members. But relying on joint ownership is a significant mistake on several fronts:
- Enrolling jointly owned farmland or ranch property in programs administered by the U.S. Department of Agriculture may result in subsidies being left on the table.
- Farmers and ranchers are giving up control of their real estate by owning it jointly with others.
- The use of joint property with rights of survivorship can frustrate the intent of an estate plan since these assets pass outside of the will or trust.
- Outright distributions by rights of survivorship will not be protected from creditors, predators, and lawsuits.
- While joint assets will avoid probate, they will still be included in the taxable estate.
Since how property is titled dictates who inherits it, farmers and ranchers need to coordinate assets held in business entities and trusts with assets that are jointly owned. Otherwise intended heirs may end up with nothing and estate tax bills may cause unintended consequences.
Mistake #3 – Overlooking Liquidity Needs
Incapacity and death are expensive. Aside from day-to-day family expenses and medical bills, attorneys, accountants, trustees, and other administrative expenses need to be paid. To make matters even more challenging, federal estate taxes are due within nine months of death, and state death taxes are also typically due within this same time frame. Without proper planning for immediate and long-term cash needs, families may be forced to quickly sell farm or ranch land and equipment at a reduced rate.
Takeaways for Farmers and Ranchers
Farmers and ranchers have unique circumstances that require specialized estate planning solutions. We are experienced in helping farmers and ranchers achieve their estate planning goals. Please call us if you have any questions about this type of planning and to arrange for consultations.