Full Coverage or Just Liability on Your Estate Plan

Dear Michael:

We have two sons – one that’s been with us for a while and one that’s just come back to the farm. In our area, land values have risen four hundred percent in the last five to seven years and, between the machinery and the land, these two boys will have to get their hands around five to six million dollars in land, machinery, inputs, etc. that we have as a part of our farm operation. We have two other children but my husband feels if the two boys take over the farm then the two non-farming children should split our savings and life insurance. This amount is nowhere near even one million dollars – maybe half of that. Do you think this is fair to the other children or am I just not seeing the business side of this? – Mom in Between

Dear Mom in Between: The son who has been on the farm contributed to the growth of the farm and the one just starting will contribute to the growth in the farm.

However, like most parents, you are in that ‘tween’ stage, where you can’t really say ‘if it weren’t for my boys, I never would have survived the 80’s’. The boys aren’t old enough to have been born in the 80’s. On the other hand, they have helped during this incredible growth spurt that’s occurred in the last decade.

There are arguments both for and against this type of estate plan.

What happens if you leave the farm to the two boys and one decides to sell out after you die and walks away with the best offer? Is there anything in place in your estate plan covering if I give your (farm child(ren) more than my other children (non-farming) how can I protect my non-farm children if my farm child becomes a ‘non-farmer’ shortly after my death? How long after I die is my farm child(ren) able to do what he wants with the property?

In most cases, people will put into their plan ‘if the farm child(ren) stay with the farm for at least ten years or to age fifty-five – whichever comes first – he is free to do what he wants with the farmland given to him. If he should sell prior to this time or age, then he shall share the proceeds of this sale with his non-farming siblings as he, too, is now non-farming.

What happens if one of the boys gets divorced or dies? Are you going to be happy if one of the daughter-in-laws then inherits the farmland from him (as next of kin with a simple will) and she then remarries to another farmer? Your non-farm children could see someone else farming their parent’s farm.

Maybe a solution would be to state in your estate plan ‘prior to any property being passed to him from my estate, he shall have a post-nuptial agreement with his spouse that this farmland – if he should die – shall pass to a trust for the eventual benefit of his children (your grandchildren) with the spouse receiving all income from the farmland – unless they should remarry. If there is a divorce action, this property is not to be considered a part of this legal action’. It sounds harsh… but you are talking about millions of dollars of property. This goes both ways – if you have a daughter or son involved in farming for the in-laws.

Last, but not least, when you state in your will the non-farming children will receive the ‘residuary cash’ of your estate, remember this – before the money gets to them, this is where the money comes from in the estate to pay for legal fees, burial costs, probate, taxes (income and estate) cost of health care (including any long-term care debts) and any and all outstanding debts.

Your non-farm children are going to be hopping mad when they see their brothers getting millions of dollars in farmland, machinery, etc. – but all the costs of the estate are being taken out of ‘their share’. You need to protect these inheritances for the non-farm heirs by setting up a proper estate plan.

Back in the 80’s, it was common for the non-farm children to receive a percentage share of what the farming child received. This was normally not a lot of money by today’s standards. However, getting fifty thousand dollars in the 80’s is like getting three to four hundred thousand dollars today.

Farmers seem to accept that machinery now costs hundreds of thousands of dollars, land costs millions, and costs and incomes are up commensurately. But for some reason, they seem to have a real difficulty using the same dollar quotient in developing an equitable plan for their children. Fuel and fertilizer could go up thousands of dollars and the average farmer would barely blink an eye.

Most farmers wouldn’t dream of buying a new truck, combine or tractor without putting full coverage on it – yet will walk around with just basic liability coverage on their entire estate plan and, essentially, ‘hope for the best’ for the future of the entire family farm worth millions and millions of dollars.

“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
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