Once upon a time, family farms and ranches formed the lifeblood of the United States. While there are certainly not as many as there once were, family-owned and operated farms and ranches still exist across America. If you own a farm or ranch, it may seem like a full-time job just keeping it running smoothly. The Phoenix business succession planning attorneys at Morris Hall, PLLC explain why protecting your farm or ranch in your estate plan is a crucial part of keeping the operation going now and in the future.
Estate Planning for Farmers and Ranchers
For anyone who own a family business, estate planning takes on a heightened importance for anyone who owns a family business. If that business is a family farm or ranch though, you face several unique concerns that other small businesses don’t typically encounter. The most common, and often most problematic, is the tendency for a family farm or ranch to lack liquidity. On paper, your farm or ranch may be worth a small fortune. The problem is that the majority of that worth is likely tied up in land, equipment, livestock, or crops. As long as you are alive and running the operation, that may not present a significant problem; however, when it comes time to probate your estate after your death, your estate may owe a significant debt to Uncle Sam in the form of federal gift and estate taxes based on the value of your estate. If your estate lacks liquid assets with which to settle the debt owed to Uncle Sam, estate assets may have to be sold to cover the tax debt. That, in turn, could put the family farm or ranch out of business.
As the owner of a family farm or ranch, you must consider things that could go wrong or that might adversely impact the operation. If you were to become incapacitated tomorrow as the result of a tragic accident, who would step in an take over the management of the operation? Never assume that an adult child is willing and able to do so. Even if they are, does he/she has the legal authority and practical capacity to step into your shoes? Moreover, will your family continue to benefit from the business’s success in your absence? After your death, what will happen to the value of your interest in the business if it is sold? If you plan to pass the business down to the next generation, have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
Estate Planning Can Help
Fortunately, most of the potential problems and challenges a family farmer or rancher faces can be resolved with proper estate planning. For example, one of the best ways to ensure that your estate doesn’t lack the necessary liquidity to cover any gift and estate tax due is life insurance. As you get closer to retirement, you can start transitioning your ownership in the farm to the next generation which will ultimately resolve the estate tax concerns as well. Incorporating a business succession planning component into your estate plan is also advisable for anyone who owns a small business. In the case of a family farmer or rancher, that plan should foresee, and plan for, the transfer of ownership, over time, to the next generation. One way to do that is to form a Family Limited Partnership (FLP) which allows you to transfer your legal interest in the business to the next generation slowly, over time, while maintaining control over the day to day management of the operation until such time as you are ready to retire. If you do pass down the farm, a Buy-Sell agreement may be a good idea. A Buy-Sell agreement guarantees that you (or your loved ones) will receive the fair market value of your interest in the farm or ranch in the event you must sell it at a later date.
Contact Phoenix Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about protecting your farm or ranch, contact the experienced Phoenix business succession planning attorneys at Morris Hall, PLLC by calling 888-222-1328 to schedule your free consultation today.