Case #2210

Written by Michael Baron on . Posted in Uncategorized

Greg and Martha came to me with issues regarding their estate. ‘We have three children but none of them want to farm. However, we have a grandson who has been farming with us for a lot of years and we’d love to give every opportunity for him to farm. How do we set things up to have the farm go to him and yet have our children get something from our estate?’

Their grandson, Jackson, was twenty-three years old, single and had worked on the farm since he was seventeen. Because he was fairly young and still not married, it left a few issues as to where he was going to be five or ten years in the future.

Greg and Martha wanted to make certain their farm was protected from any health issues that they had in the future. They had some funds in an IRA, but these funds would only cover about two years of care for them.

As we discussed different avenues of protecting their property – trusts, life estates, etc. – they also had to be aware that if their grandson were to own something upon their death, what would protect him from a divorce or a death whereby his assets – including the deed – go to his spouse.

There’s always, I’d like to say, a fine line between being able to make a farm operation succeed in following generations and not.

But it’s not a fine line – it’s a very big, thick, fat line. That grandson has to be able to control at least forty-five percent of the assets or he is not going to be able to get financing to make his operation run.

Greg and Martha could use an irrevocable trust whereby if they should die, the land would be held for a few years until the grandson grew up, or got past the years where finances and marriages have a tendency to have a high failure rate. They could put terms and conditions for Jackson to receive the property such as he is to receive the land once he buys out a share – not necessarily an equal share from his mother and two aunts. Or he could pay rent to them for a number of years and receive the property when he reaches age forty or has paid at least ten years of rent to them.

Greg asked “What happens if we change our mind down the road and we decide Jackson is not the person who should be on the farm. We don’t know who he’s going to marry and how that will affect our lives?”

The problem with the irrevocable trust is once it’s set into place and the ownership of the assets is transferred to the trust, as long as Jackson lives up to the terms of the trust, he’s going to get the property.

The other issue is Greg and Martha cannot exercise any control over the assets once the assets have been transferred to the trust. If they exercise any control – such as what will be planted in the fields – Medicaid will deem this trust to be a sham trust and therefore all assets in the trust would be countable assets.

It’s a common misnomer people believe Medicaid would sell the assets themselves. They don’t do that – they just take the value of the assets and divide it by your cost of care and tell you that you are ineligible for Medicaid benefits for so many months. In other words, if you have five hundred thousand of countable assets and your care costs are five thousand per month, you’re ineligible for Medicaid payments for one hundred months. If you need care someone will pay for it – just not them.

In Greg and Martha’s case, they decided they wanted the deed to reside with Jackson subject to terms. They also gave a secondary life estate to their daughters with the condition that Jackson could buy out their life estate interest at any time. If he bought them out at an appraised value, they were out.

Jackson also had to be an active farm participant to be able to buy them out or to rent the land at the rate we set in the life estate deed – a percentage of the Average County Rents – in this case. If he resold the land within ten years, then he had to pay his mother or aunts the difference in the price he paid them to what he received.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.