Every estate plan has elements that are specific to the families and individuals involved in the estate. One type of asset that requires special attention is the family farm. As recent years have shown, farming can be a volatile business affected by factors such as the economy and the weather. Planning for the long-term management of a farming operation must account for these factors as well as fluctuating valuations.
Because of the nature of the business, it isn’t unusual for farmers to have all of their cash and assets wrapped up in their farm – land, equipment, crops, livestock, etc. – without much operating capital. “Land-rich and cash-poor” is a description often used. And one of the pitfalls is that, until the operation passes to the next generation, the owners may not realize how the value of the assets has changed, whether up or down. Their first knowledge may be when the IRS assesses a tax on the property when it transfers at death.
In most instances, discovering that your asset is worth more than you thought is a positive thing. Unfortunately, when surprised with a higher value than expected, the new heirs may have no choice but to sell some, or even all, of the farm assets to pay estate taxes. Then the legacy of the family farm is gone.
The U.S. Department of Agriculture has researched the ages of farmers in the last decade. The numbers show that the number of farmers over the age of 65 increased by nearly 22 percent in the five-year period between 2002 and 2007. Their data also show that farmers over the age of 75 outnumber by 5-1 farmers under the age of 25.
With those numbers, it is obvious that estate planning is crucial to passing the farm to the next generation. A consultation with an estate planning attorney who has specific knowledge of the issues unique to farming is a necessary step in securing this family asset.