A roadblock in building a family farm transition plan is when parents are faced with the challenge of how can they treat the farming siblings and the non-farming siblings fairly in their estate plan. The key may be to treat them fairly avoiding the “treating them equal trap” which often results in breaking up the farm business into non-functional parts.
Over time, these dysfunctional parts of the former farm, which are now owned by active and non-active family members, can hamper the ability for the “family farm” to survive. The active farming family member(s) need to have the option and opportunity to keep the farm assets intact. In this current economic environment, some families combine some gifting and discounted sales of assets to the next farming generation.
If transition is scheduled to take place when members of the senior generation retire or die, the next generation is often also in retirement and not in a position to operate the family farm. This means that the major components of a functional farm unit, the farm’s equipment, buildings and in some format the land base, need to remain together as a package if at all possible. One needs to keep in mind the needs of the active members of the family farm. Michigan State University Extension recommends looking at what options or considerations are available in developing a fair mix of gifts, sales and distributions of assets between the heirs.
Non-farming heirs often have plan options that include a package of the non- farm assets which include cash, investments, and IRA or retirement accounts. But with many farms, these sets of assets are still much smaller than the total value of the farm assets (equipment, buildings and land). So what else can be considered? It will take some effort and planning, but looking for methods to provide for the non-active farming family members to take a share of the estate in non-farming assets will provide the greatest opportunity for the family farm to survive.
In the current economic environment some families combine some gifting and discounted sales of assets to the next farming generation. The sale can generate cash that can be used to support the senior generation and to create a non-farm investment fund for the non-farming family member’s inheritance. These non-farm funds from the sale of farm assets to the farming family members can be directed to the non-farming heirs through the senior generation’s Will/Trust.