Thank you for the articles concerning estate planning. They all are very informative and helpful. We are 64. We plan to retire fully by age 70. Our two sons live on the ranch with our older son now managing half of the ranch. Our younger son admits he is not sure if this is the life for him but is making no moves to choose another career, although he finished trade school and has worked off the ranch for a few years. This year he made the choice to move home and buy heifers.
Six years ago, our married daughter with the idea to be part owner, but her husband hated ranch life. After two years he said they were leaving. He was upset with us and now we are still estranged. We love our daughter and her family. However, we’ve seen out of state relatives with part ownership in some of our lands, which was a headache. Having alleviated that situation by buying their shares, we do not want to burden our sons with that scenario.
There must be ways to include our daughter and/or her children in our estate without compromising or encumbering the real estate, which we feel belongs to whoever is managing and making their living here. Any ideas for options to discuss with our attorney and CPA? = Clearly Baffled
Dear Baffled: I’m sorry to hear that things didn’t work out with your daughter, but putting four entities on the farm/ranch operation is going to lead to a lot of conflict – as you found out.
Both your lawyer and your CPA – albeit trusted advisors – are going to expect you to have a plan prior to coming in the door. Until you are ready to draft your plan, your attorney is going to keep sending you home until you do come up with something or, worse yet, send you home with a generic will that doesn’t address your situation.
As you describe your situation, of your three children, it appears your oldest son is the only one ‘truly’ committed to the farm operation. Your second son has come and gone and come back again but it sounds like he doesn’t know exactly what he wants to do with his life. As long as you two are there as referees, the two boys are going to do what you ask of them – but I think if you were gone, sparks might fly there as well.
With all that in mind, you have to devise a plan that protects the integrity of the ranch, first and foremost. Making everyone happy might be a foregone conclusion at this time and the worst possible outcome would be everyone fights it out to the bitter end until the ranch is all gone. Focus on the ranch operation and what it would take for it to succeed and worry second about making everyone happy – because no matter what you do now isn’t going to meet everyone’s expectations.
As such, I would determine exactly what the oldest son would need to succeed in ranching. This normally entails a plan where he can someday own the buildings at the heart of the operation. Perhaps you have another farmstead where you can start preparing for the second son to start building his own operation.
If so, then you’d decide what acres are needed by the first, which ones are needed by the second son and geographically separate them in your will so they make the most sense to the farmstead(s). If there is no other farmstead, then the oldest should be prepared to pay half of the value of the farmstead to the younger son to build his own site – IF he stays in ranching. Your will should state this will happen only if the two sons decide to go their separate ways in the future and both of them ranch and stay in ranching for longer than five years after your death. You might use a trust to own the land after your death – known as testamentary trusts – for the period of time necessary to determine who is serious about ranching and who is not.
Should one of them leave and join their sister as a non-farm heir, then they would receive either a settlement from the ranch operation – a value of your choosing whereby equitable is not equal – and your oldest can decide how he wants to fund this future purchase. Many people use a second to die policy – originally designed for paying estate taxes as there are no death benefits paid until the second spouse dies – when estate taxes are due – but now used more and more to buy out non-ranching heirs.
How you determine the right amount is up to you. I’ve built a ‘sweat equity calculator’ on my home page that might be of assistance when determining the value of the child(ren) who stuck with the farm/ranch operation.
“Keeping the Family Farm in the Family”
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