A family’s agricultural business can be a great source of pride, but these entities face challenges when passed from one generation to the next. New leadership must be chosen carefully to ensure continued business success, and the threat of estate taxes after an owner’s death needs to be addressed ahead of time.
Like most businesses, farms and ranches require a leader, and a farm operator that wants to pass the reins should do so in a formal manner with legal documents. The new leader should be someone with an aptitude for and interest in farming. Corporate and estate planning documents should spell out the terms and timing of the leadership succession. During succession planning, issues about land ownership should also be evaluated. Whether a farm is being split among family members or given to one heir, the estate plan needs to make clear statements about ownership and the distribution of income to avoid family disputes and lawsuits.
Estate taxes pose another problem because farming operations often have highly valued assets. Unless an estate plan has taken steps to mitigate tax burdens upon the passing of an owner, the Internal Revenue Service could expect a 40 percent tax to be paid within nine months. This tax bill sometimes forces heirs to sell the land or get a loan. Legal methods of wealth transfer, however, offer agricultural families options for reducing or even eliminating this undesirable outcome.
A person who has large real estate holdings or other substantial assets could ask an estate planning attorney to research the taxes potentially owed by heirs. Upon gaining an understanding of the estate’s value and the owner’s goals, a lawyer could suggest different legal approaches, including trusts, for transferring assets. An attorney may also take care of the drafting and revising of the necessary documents.