Farming and ranching is more than just a livelihood; it is about preserving a legacy and a way of life. Unfortunately, many farmers and ranchers fail to engage in farm and ranch estate planning to create a comprehensive estate plan—or any estate plan at all. Without a proper estate plan, the family farm or ranch, passed down for generations, can end up being sold and converted to nonagricultural use, cutting the family’s legacy short and ending their unique lifestyle.
Below are three common estate planning mistakes farmers and ranchers make and how to avoid them.
Mistake #1—Failing to Plan
As a farmer or rancher, you have distinct estate planning needs. You may have children who want—or do not want—to continue the farming or ranching business. You have to consider who should inherit your land, equipment, livestock, accounts, and other property, while trying to keep things fair and equal. As a result, you may be unable to decide what to do and end up doing nothing at all.
Fortunately, many estate planning options are available that will help you fulfill your ultimate goals for the future. To preserve what you have and leave it to the next generation, you need to work with a team of experts, including attorneys, accountants, bankers, insurance specialists, and financial advisors, who are familiar with the nuances of estate planning and its intersection with farming or ranching legacies to ensure that the plan will work as anticipated when it is needed.
Mistake #2—Relying on Joint Ownership
You may believe that the easiest way to avoid having your loved ones go through the probate process at your death is to own your property jointly with them. However, transferring all or part of your farm during your lifetime may have unintended consequences. For example, farmland or ranch property that is jointly owned and enrolled in programs administered by the United States Department of Agriculture may result in subsidies being left on the table. In addition, joint ownership causes you to give up unilateral control of your real estate.
Someone added as a joint owner to your account or property can make decisions about it: They may withdraw money from the account without your knowledge or consent. They can also prevent the property’s sale if they disagree with your decision to sell. Your co-owner’s creditors may also be able to go after jointly owned accounts and property. Unlike other planning options, joint ownership may not be easy to change, since “undoing” joint ownership can have significant costs and tax implications. There are other unintended consequences of transfering ownership, including impacts to Medicaid eligibility if assets are transferred for less than fair market value within five years of seeking eligibility.
Holding real estate in the name of a business entity (corporation, partnership, or limited liability company) or a trust is a better option, as it allows you to minimize liability and retain control.
Mistake #3—Overlooking Liquidity Needs
Incapacity (the inability to manage your own affairs) and death are expensive life events and often require cash to pay expenses. However, farmland and farming equipment are not easily converted to cash. Without properly planning for short- and long-term cash needs, your family may be forced to quickly sell land and equipment for pennies on the dollar.
You have several options when creating a plan to manage debt and expenses during your incapacity or after your death. Financial advisors, bankers, and insurance professionals can assist with securing lines of credit as well as helping to identify the proper amount of disability, long-term care, or life insurance to prepare for the unexpected or the inevitable. And we can assist by creating life insurance trusts, living revocable trusts, asset protection trusts, business entities, or other, more comprehensive plans.
Final Thoughts on Estate Planning for Farmers and Ranchers
We understand that farmers and ranchers require specialized estate planning solutions. Farming and Ranching is both art and science and you need people on your team that share your values and your vision, who understand your challenges. and who can assist you in creating and maintaining a plan that will preserve your legacy and unique way of life. Our firm is experienced in supporting farmers and ranchers with achieving their estate planning goals and we are happy to work with your other trusted advisors to achieve your goals.
At Ellis Law Office, we understand that your land is more than just an asset—it’s your legacy. Our team is experienced in farm and ranch estate planning. Together, we can build a plan that turns your vision into action and empowers your legacy for generations to come.
Ready to secure your farm’s future? Schedule your no-cost consultation with us online or call (913) 592-2029 (Spring Hill) or (913) 386-8135 (Leawood).
Let’s work together to ensure your legacy is built to last.