Three Estate Planning Mistakes Farmers Make and How to Avoid Them

Farming is more than a means of livelihood – it is about preserving a legacy and unique way of life. Unfortunately, many farmers fail to make an estate plan – a mistake the drastic consequences of which cannot be overstated. The farm that has been passed down for generations then ends up being sold, cutting the family legacy short, and putting an often-permanent end to the family’s unique way of life.

Sadly, farmers are not the only ones who avoid making or updating an estate plan – many others, including business owners and parents, also avoid planning, which can sometimes create similar problems. Below are three common estate planning mistakes farmers make and how to avoid them.

Mistake #1 – Failing to Plan

Farmers have complex estate planning needs. They may have children who want to continue the farming business and children who do not. They will be forced to decide who inherits the land, the equipment, the livestock, and other assets, all the while trying to keep things fair and equal. This is not a choice others can make for the farmer and is often an aggravating decision. As a result, many farmers cannot decide what to do and end up without any estate plan at all. For others, this same circumstance can occur with the family home, rental properties, or the family business.

Fortunately, there are many estate planning options available to farmers, business owners, and others that will allow you to fulfill your ultimate goals. No matter your occupation or asset mix, you need to work with a team of experts (including attorneys, accountants, bankers, insurance specialists, and financial advisors) who are familiar with the intricacies of estate planning to ensure that the plan will work as anticipated when it is needed.

Mistake #2 – Relying on Joint Ownership

Many people, including farmers, believe that the easiest way to plan their estates and avoid probate is to own property in joint names with family members. However, farmland that is jointly owned and enrolled in programs administered by the U.S. Department of Agriculture may result in subsidies being left on the table. Aside from this, joint ownership causes you to give up control of your real estate. Unlike other planning options, joint ownership may not be easy to change, since “undoing” joint ownership can have significant costs and tax implications. In some cases, joint ownership can make it more difficult to achieve maximum estate tax protection of both spouses’ estates.

Holding real estate in the name of a business entity (corporation, partnership, or limited liability company) or a trust can be a better option and will allow you to maximize subsidies and estate tax protections, minimize liability, and retain control.

Mistake #3 – Overlooking Liquidity Needs

Incapacity and death are expensive and often require cash to pay expenses. But, farmland, farming equipment, personal residences, automobiles, and other personal effects are illiquid. Without properly planning for immediate and long-term cash needs, families will be forced to quickly sell land and equipment.

Farmers, business owners, and others have several options to choose from when creating a plan to manage debt and expenses after incapacity or death. Financial advisors, bankers, and insurance professionals can assist with securing lines of credit and the proper amount of disability insurance, long term care insurance, and life insurance. Attorneys can assist by creating revocable trusts geared toward estate tax protection, life insurance trusts, business entities, and other more complex strategies like part gift/part sale arrangements.

Final Thoughts on Estate Planning for Farmers

Farmers live a different lifestyle and require unique estate planning solutions. But they’re not alone – everyone from business owners to parents has specific planning needs. A team of advisors, including attorneys, accountants, bankers, insurance professionals, and financial advisors, can assist you in creating and maintaining a plan that will preserve your legacy and unique way of life. Our firm is experienced with supporting farmers, business owners, professionals, and others in achieving their estate planning goals.

Please call our office if you have any questions about this type of planning and to arrange for a consultation.

To learn more about estate planning and farm succession planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

If you’re ready to start being proactive about your estate plan, contact us to get started.

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Categories: Estate Planning, Farm