Passing the farming/ranching operation to successors has become the most pressing issue of callers to agricultural hotlines in the Upper Midwest lately, according to their managers. Farm owners’ worries about fairness to all successors in their estate plans top their list of concerns.
The hotline managers also reported a few calls from inheritors who feel they are being shorted. Why have estate matters become a major topic of concern for farmers?
Farm estate planning has always been dicey, but now it’s attracting more attention because farming has become profitable during the past two years as market prices for agricultural commodities such as grain, meat, fruits, and vegetables, have increased substantially, following several years of declining slightly or holding steady. Sale prices for farmland, machinery, grain storage facilities, and livestock operations have also increased by double digits in most agricultural areas since 2019.
A few segments of agriculture haven’t shared as much in the recent profitability, such as family-sized dairy farms. Nonetheless, the sale prices for their farmland and other farming assets have risen modestly, mainly because other farmers sense new opportunities.
With increases in their net worth, farm owners developing their estate plans fret about making all their successors happy, knowing that their prospective inheritors are also paying attention to the value of their inheritances.
Some farm owners haven’t figured out a satisfactory solution to what is most fair in passing along their land and other farming assets to family descendants and others whom they wish to benefit. After four decades of consulting with individual owners, family farmers, and corporate entities to figure out amicable estate plans, I can recommend several guiding principles.
Keep in mind that I’m not a lawyer and that the assistance of an attorney who is familiar with state and federal rules is almost always needed when finalizing the estate plan, and sometimes before that step.
Principles and resources to consider when formulating an estate plan include:
- Treating all successors equally might not be the fairest. Some successors may have contributed more to maintaining the agricultural operation than others. The estate owners, not the beneficiaries, control the succession plan. They determine the distribution of their assets, but they can defray future lawsuits by explaining their rationale for unequal distribution. Unhappy inheritors can challenge the will in court, but they must prove their claims, such as incapacitation of the estate owners to make sound decisions when the documents were recorded; that’s usually difficult.
- The farm owner/operators usually have a higher purpose in mind than treating all successors equally, such as preserving the family farm for the next generation. They may want to make the family farm affordable for one or more of their farming successors, even if it means a greater share of the land and assets are willed to these descendants who are farming than to their non-farming successors, or at a lower-than-usual purchase price.
- Develop a flexible estate plan that enables others, such as grandchildren and beloved employees, who want and deserve to farm. The opportunity to farm should be accompanied by the urge to farm. This may involve developing trust or placing the land under the management of a non-profit foundation that guarantees opportunities for all successors who comply with stipulations of the contract.
- A family legacy letter from the estate owners signals to their successors how their farm was acquired and offers them directions—but not requirements—for continuing the operation. A 2018 book by Teresa Opheim offers guidance: The Future of Family Farms: Practical Farmers’ Legacy Letter. Some makers of wills write a letter of instruction to help their successors carry out their wishes and reasons for their decisions about inheritance.
- Approaching farm business consultants and succession planners can be beneficial to determine options when constructing an estate plan. They, as well as attorneys familiar with state and federal laws, may be worth the fees they charge. Set up a contract with these advisors before engaging them beyond one or more exploratory discussions.
- The more information the estate owners and the inheritors have, usually the better. Holding one or more informational meetings with everyone who has a stake in the estate is more likely to lead to harmony than in-fighting in the farm transition.
- Set rules of decorum for these meetings, including minutes, and strategies for resolution of differences. Farm dispute mediation services, which are available in all agricultural states, and state Extension Services can usually offer guidance. Consider articles I wrote in February 2013: Recommendations for Conducting Farm Business Meetings, and in June 2014: Farmland Transfers: An Emotion Laden Transition.
Transitions in farming don’t have to be problematic if owners plan ahead. One more guiding principle: Passing along the farm in better shape than when the estate-makers acquired it sets a standard that the successors usually want to follow.