Estate planning covers more than just drafting a will and selecting an executor. Estate planning encompasses planning for death, as well as disability, incapacity, retirement and business succession. A family business, particularly a family farm, requires very distinct planning methods for proper succession. There are unique tax and property issues that often arise with farms. More importantly, the emotional attachment that comes with a family farm usually leads to disputes, and at times, a fight for the family farm.
What causes a family to fight over the farm?
There can be a variety of legal issues that result in litigation over family-owned farmland. However, the emotional component is more likely to lead to litigation, especially following the death of the matriarch or patriarch of the family.
While most farms that have operated in the family for many generations, will continue to be passed down, the reality is not all family members desire to be involved. In some cases, one relative receives much less than expected, or may be left out of the will altogether. If this is the case, a family dispute is inevitable.
Discuss succession plans with the family
One big mistake is assuming that certain family members will, or will not, be interested in farming. Another mistake is thinking the child who has no interest in farming will be satisfied not receiving a share of the farm. For these and other reasons, it is important to discuss your plans for passing on the farm with your family, so you don’t set the scene for a battle later, especially when the farm increases in value over time.
Compensation for family who work the farm
In many cases, there are children or other family members who have worked the farm for a significant period of time. It is important to also consider those relatives to be sure they are sufficiently compensated for their work. Otherwise, the likelihood of a future disagreement regarding the shares they receive is more likely. In the worst case, a child could bring a claim against the farm for unjust enrichment, quantum meruit or proprietary estoppel.
Planning for Succession of the Family Farm
Family-owned businesses require a proper business succession plan. In order to ensure that the family farm will continue operating after your death or retirement, it is necessary to plan ahead. It is critical that farm owners handle the important aspects of the farming business ahead of time, including continuation of management and the transference of ownership. Farms are a very special type of business with particular assets, which make transfers more complicated. It is a good idea to seek the advice of an estate planning attorney with experience in succession planning within the farming industry.
Farm succession planning means more than just transferring ownership
The farming industry is a unique one, involving distinctive assets and special legal concerns. In addition to a large amount of land, there is also very specialized machinery, as well as livestock, that needs to be included in your asset transfer. All of the essential components of your farming enterprise must be handled properly so your family farm will survive succession to the next generation.
If you have questions regarding farm succession, or any other estate planning and family-owned business needs, please contact Sexton, Bailey Attorneys, PA online or by calling us at (479) 443-0062.