Case #431

Written by Michael Baron on . Posted in Farm versus Non-Farm, General Estate Planning, Transferring Ownership

John and Jill came to me to tell me what they had thought about in their estate planning process and to get my opinion on their thoughts.

“We have a son who is farming with us for the past five years. He’s single and doesn’t have a girlfriend. We want him to have the machinery and the building site but the remainder of the farmland will be split between him and his two sisters” said John. “The two girls are married and have children and we don’t want them left out” he continued. “One of their boys even comes out to the farm – even though he’s only four – and sits on my lap while I do rounds in the field.”

“Our land is valued at close to four million dollars and we just don’t feel it’s right that all of this land goes to our son, Rocky” Jill explained. “Our girls should receive their fair share of the farmland and be able to pass it down to their kids.”

In my experience, this is a pretty common fate for unmarried children working on the farm versus non-farming children who are giving their children grandchildren – especially grandchildren who show an interest in the farm at an early age.

Sometimes, parents and grandparents can get so wrapped up in the involvement or non-involvement of their children and grandchildren, they fail to see the normal business rules each business needs to follow in order to succeed. If the land were split evenly between all of the children, I can guarantee Rocky will be out of business in under ten years’ time.

Why? Because it takes about five to ten years for the non-farming children to forget the promises to their parents that they would never sell the land, they will always permit their brother to use the land, and to find something new in their lives whereby selling the land at outrageous prices will more than pay for this new dream. It’s like dangling a honey bee nest over their heads and telling them to take the drips coming down. But as soon as the bees leave the nest, you know one of those children is going to be climbing up that tree to grab the whole honey comb.

And that someone could be the young man on the farm, Rocky! What happens if he finds someone to spend his life with and her ultimatum is “I’m not living on a farm”?

There’s a lot of primal instincts brewing in any estate planning situation. The grandparents want to see their farm legacy carried forward for generations to come. They see their son not producing heirs nor any near future possibilities. One of the other grandchildren is showing a huge interest – but he’s four, so….who knows? We have to balance these primal instincts with good business practices or everyone loses.

But what happens when those instincts lead one to a bad estate plan where no one wins? Splitting the land three ways and hoping the son can make a go of it is not going to work as he needs at least fifty percent of the land in his name to make it work.

In this estate plan, there is much to be considered. How to make a viable estate plan and giving the estate its best chance of survival?

We need a plan for what happens if the son stays in farming, gets married, and has heirs of his own. If this occurs, then we have to have a way for him to rent or purchase the land from his sisters for his farming career at a rate he can survive.

Are we going to put the land into trust and let the son farm it until he is finished and then give the third generation an option to farm if their four-year old interest turns into a lifetime passion? If the son never marries, will we allow this grandchild to enter the farming operation? If the son leaves the operation after Dad and Mom’s death, does the grandchild have the right to step into it with the same terms that the son had?

Lots and lots of questions to be answered – as is the case with every estate plan. Have you got all of your ‘what if’s’ addressed?

“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.