Based on data compiled by the United States Department of Agriculture’s 2017 Census, there were approximately 33,438 farms in New York in 2017. This includes 6,886,171 acres that are currently in production. As anyone who lives on a farm can tell you, life on a farm is unique in various ways.
This is particularly true for families who are engaged in estate planning. One of the biggest challenges that many farm families with estate planning is deciding exactly how to pass on the family farm. Farm families must assess how the farm will likely perform decades from now. When multiple children are involved, dividing the farm among family members can also be challenging.
Creating an estate plan that will properly handle farm succession is critical. Not doing this means that a family might leave its children financially vulnerable. Not to mention, a farm is the most valuable asset that many farm families own. According to data compiled by the United States Department of Agriculture, the average value for a larger family farm was approximately $4.5 million in 2014.
This article reviews some of the most common strategies that farm families utilize to pass on their farms.
Option # 1 – Purchasing the Farm while Parents Are Still Alive
Some farm families decide to have a child purchase the farm after parents reach retirement age. The proceeds from the sale of the farm are then placed into the parent’s estate and divided equally among heirs. The challenge with large and valuable farms, however, is that transferring ownership of the farm in this way can result in the property being subject to capital gains tax. In most cases, the child that purchases the farm must also either have enough capital to buy the property or take out a substantial loan to pay for this purchase.
Option # 2 -Purchasing the Farm after Parents Pass Away
Similar to the first option, farm families sometimes decide to have a child purchase the farm after the parents pass away. Many times, this means that estate planning laws can be utilized to avoid several types of taxes. In some cases, children might be required to pay more to purchase the farm. Escalating property or farm prices, however, can sometimes be avoided if the family establishes a price in advance for the sale of the farm.
# 3 – Dividing the Farm
Some families simply decide to split up the farm. This means giving children or surviving loved ones a share in the property. This can be done in either equal or unequal amounts. One of the substantial challenges that is introduced with dividing property in this way is that heirs might end up using their share of the farm for purposes that are undesirable to other family members.
Speak with an Experienced Estate Planning Attorney
No matter how a family farm decides to pass on their farm, it is critical to create a detailed estate planning farm to transfer assets. One of the best steps that you can take to make sure that your estate planning goals are achieved is to speak with a knowledgeable attorney. Contact Ettinger Estate Planning today to schedule a free case evaluation.