Dear Michael: In a recent article, you discussed different methods for transferring our farm to a farming son while keeping the other children happy. You were pretty general about these ideas and promised to be more specific in this article. Can you give us specific ideas about what things we can do? We've heard everything from trusts to life estates to 'just sell the farm to him', but we're never sure of what is the correct thing to do. Maybe we get too much information. – Overloaded on Info.
Dear Overloaded: There are a number of things you can look in to regarding your desires and needs.
Above, you've listed some of the things I've seen people use in the past – although I don't see people take the ideas far enough.
For example, a life estate isn't a bad way to go, but just a transfer of deed wouldn't go far enough if it were my land. I'd have a life estate deed with either an agreement with my children how the land will be handled past my death, or written directly into the deed transfer document (quitclaim) itself.
If I do a conditional transfer, then my children will have to sign to accept the conditions I have put upon the land. Such things might consist of "if you sell the land, you have to give first option to your siblings" or "upon my (our) death, you must rent the land to your farming sibling at this rate".
This rate might be county average or a percentage – either higher or lower – of one hundred percent of the county average.
For example, "the rent will be no more than 125% of the county average for like land in _______ (fill in the blank) County".
I can dream up any number of conditions I want on my deed, and if my kids sign for those terms and I register my deed they have to follow those terms and conditions. That's what I would do.
Another thing I might do if I had a farming child is set it up so that my kids would have some reason to get along someday. I might have my attorney put into my life estate deed that I am transferring my land to my farming child subject to the "all rents received from my child shall be attributed to the purchase price of this land stated herein" and then show a number or price for the land.
Upon my death, my farming child would have to pay the difference between the original purchase price listed in the deed less any rents he paid to me or my wife over my lifetime. I might even decide he gets a share of the remaining value for his own inheritance.
Again, I need to make sure I set this up with him, have an attorney draft the agreement and/or the deed and then he has to sign agreeing to these terms. If my son is of age and can sign such agreements or acceptances, then he'll have to live with my terms and conditions.
People always ask, "What happens if the child doesn't want to sign my terms?" This is what I would say to my kids: "Fine, don't sign them and see what happens!"
I remember when my dad took me to the ice cream store and said, "Okay, Michael, you can have this or this…" And if I said, "Well, I want more!" Like it or not, we were out of the parking lot before the words got out of my mouth! (Life can be very simple, can't it?)
What happens if a son, who's farming, wants to buy the farmland? You can say, "Okay, here's what I want for my land: $____ amount of dollars. You pay me this much per year in income and every few years when I feel you've paid for this quarter or eighty or section, I'll give you the deed for that land. However, to keep my income the same, I might say, 'Well, now you get to buy the next piece but, of course, the price has gone up a bit."
If I pace myself right, I should run out of land about the same time I run out of life. At the very least, I've moved these assets out of my estate, my son can show he paid for them, and the rest of the family won't have anything to argue about.
Everybody always asks for my opinion of wills, or trusts, and any other type of legal instrument. My reply is, "They're all just tools in the shed, and until you tell me what it is you'd like to accomplish, don't worry about the tool you'll need."
More importantly is you need to spill your beans out, no matter how outlandish it might seem to you. Like what you'd really like to see happen if you died today, and then let the appropriate professionals design a plan that does exactly that for you. If you're working with the right people, they'll figure out a way to make things work out the way you want them. The plan might change over the years, but that's planning for anything in general.