Farm Succession Planning Mistakes You Must Know!
Various challenges confront farm owners during succession and estate planning. Farm operations include large amounts of valuable real estate, but cash reserves might be low. Identifying and grooming successors to take over farm management can create tension among family members. A divorce could result in unforeseen divisions of the farm estate. For these reasons, the succession planning process typically involves consultations with an Indiana lawyer knowledgeable about estate, business, and family law. Noblesville lawyers at Webster & Garino may help you avoid or mitigate the following common problems that frequently disrupt or derail succession planning for Indiana farmers.
Whether you have a farm or not, putting off action about estate planning is easy to do. No one wants to think about leaving this world, but a family’s farming legacy relies on tackling tough conversations and deciding how to prepare.
The dangers of farming as an occupation are well documented. An untimely death could leave the distribution of assets up to a probate court and potentially leave survivors with onerous tax bills. A farmer who passes without a succession plan will miss the chance to build a foundation for future success.
You do not want to delay succession planning because it takes time. You will need to do some soul searching before making decisions about the future direction of your farm. The process should include seeking input from your family members. A conversation with a Carmel Indiana attorney will get you started with the process.
- Thinking Joint Property Titles Are Good Enough
A jointly titled property will spare your farmland from probate, but it does nothing to protect farm assets from other legal issues that may arise after the land passes to a spouse or children. Creditors could come after heirs. Current or future marriages of heirs could also shift the farm into a marital estate subject to division during divorce. An Indiana lawyer could help you explore options, like a trust or LLC business structure, for shielding a farm from exterior legal claims.
- Overlooking Expenses at Time of Death
When developing a succession plan, you should consider how much cash may be needed during the transfer of an estate. Your family might need to pay probate fees, or the farm might need cash available to continue operations. You may wish to give one or more heirs a cash inheritance as well. These cash issues can be addressed in multiple ways. You may need to prepare certain assets for liquidation or buy a life insurance plan.
- Assuming Estate is Small Enough to Avoid Federal Estate Taxes
The generous federal estate tax exemptions currently allow a couple to pass on an estate valued at up to approximately $22 million without incurring federal estate taxes. These exemption amounts are set to return to 2017 exemption levels in 2026. On top of future reductions in exemptions, the value of your assets will likely continue to rise. Your farm’s value might eventually surpass the exemptions.
A business lawyer in Westfield can recommend how to monitor your farm’s value and head off concerns about federal estate taxes that might sneak up on you.
- How to Be Fair to All Beneficiaries
Dividing a farm equally may not produce the results that you desire. Some children might have careers outside of farming and little interest in taking over a farm business. One or more children might have invested time and effort in learning the farm business and want to take the reins when the time comes. If the farmland is equally divided and sold by the non-farming children, there may not be sufficient farmland to sustain farming operations. By transferring the land into an LLC, equally dividing the ownership interest in the LLC and allowing the farming child to pay cash rent to the LLC, you can treat each child the same and still provide an opportunity for the farming child to continue farming operations.
- Failing to Consider Disability As Well As Death
A succession plan can include the transfer of management in the event of your disability or incapacity. If the person who holds the authority to make decisions for the farm business suddenly cannot do so, severe delays could result. Some decisions in farming are very time-critical, and provisions in your plan could allow for a swift transition of authority so that the critical business activities can continue with minimal interruption.
- Avoiding Communication
A succession plan does not emerge overnight. Ideally, you will spend time talking to your family about what you would like to happen. You will also learn what your heirs hope to receive or accomplish. Someone might genuinely want to fill your shoes, whereas another heir might know that he or she is not a good fit. These discussions allow everyone to work through hopes, dreams, and hurt feelings and possibly arrive at decisions that form an effective succession plan.
Lawyers Who Understand Agriculture
The lawyers at Webster & Garino frequently practice in agricultural law. Some of us grew up in farming families. You will get to consult with a business lawyer in Westfield who understands your concerns. We will work hard to research appropriate strategies for your farm succession plan. Call us today at 317-565-1818 to arrange an appointment.
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