When you are the owner of a family farm, you face special challenges. You must ensure that you are able to pass your farmland on. You likely want your farm to be your legacy and you want to keep your farm in the family, but doing this can be challenging because of estate tax rules and because of other logistical issues.
The Law Office of Michael Robinson, P.C. is here to help. Our legal team will work closely with you to help you understand the rules that could impact your ability to pass on your family farm. We will work closely with you to ensure that your farm is able to move to the next generation without loss and we will help you to put a plan in place to minimize all potential sources of risk during your lifetime. Give us a call to find out more about the ways in which we can help.
Why is Family Farm Succession Planning Important?
Family farm succession planning is important for several key reasons involving risks to your assets during your life as well as the potential for loss after you pass away.
Farmland is valuable. If you must obtain nursing home care or pay for long term care costs, your farm could be an asset that disqualifies you from getting Medicaid to pay for these costs. You could be forced to impoverish yourself– which could potentially include having to sell land or equipment – before you can get nursing home care paid for. Since Medicare and most private insurance won’t cover long term care or nursing home care except in very limited circumstances, there is a substantial chance you’ll need Medicaid to pay for you to go to a nursing home and will be in dire financial straits if you cannot get covered without selling farmland or equipment.
If you become incapacitated, your farm is also at risk. Someone needs to actively manage the farm and must have authority to make key decisions to keep the farm running. If you cannot act because of incapacity, it could take time for loved ones to have you declared unfit and to have a guardian appointed who can manage your affairs and take care of the farm. A period of uncertainty when there is no one with authority to control the farm could cause substantial loss.
When you pass on, there are a few key risks to your farm. One major risk is estate tax. Often, farmland becomes very valuable because the land appreciates, or goes up in value over time. This means that, on paper, land you own could be worth millions of dollars. The problem is, while your estate may be valued as being worth millions, you likely don’t actually have millions of dollars of liquid assets if you are a farmer. This could mean that your heirs or beneficiaries would essentially be forced to sell the farmland just to pay the taxes that are due because the land has become so valuable.
There is also another risk as well: the probate process takes a long time, and during this process, your farm could again suffer from not being managed by the designated new owner for a long period.
How Can You Protect Your Farmland?
To protect your farm, you should first be aware that there are special estate tax rules applicable in certain circumstances. As the Washington Post explains, there is a special use valuation that allows for your estate to be reduced by $1.1 million as long as certain conditions are met, such as the land being farmed for 10 years after death and at least one family member participating in management of the farm. Other possible estate tax discounts also exist, including a provision of the tax code that allows the estate tax to be paid over time at very low-interest rates.
While these special estate tax rules can mean that estate tax is not as big of a threat, they don’t protect against taxes in all circumstances. You should talk with an experienced attorney to find out if you will be able to avoid estate tax after your death because of special use valuations and other rules applicable to family farmers. If these special use valuations and other estate tax discounts apply to protect your farm, you won’t have to worry as much about making a succession plan aimed at tax avoidance. You will have to ensure, however, that your loved ones who you are passing the farm onto will be able to meet the criteria necessary for the special rules to apply.
You will still need to address other issues associated with the transfer of the farm, even if you are able to avoid estate tax. These issues, like making sure someone is able to manage the farm in case of incapacity and facilitating the timely transfer of farmland and assets after you pass on, are very important. You should make certain that you have explored options such as the use of trusts, the creation of a family limited partnership, incorporation and the use of joint ownership and pay-on-death accounts to facilitate the efficient transfer of farm assets outside of the probate process. Exploring all of your options can make it easier for you to create a comprehensive plan to transfer your farm quickly and to avoid having to pay a substantial amount of estate tax when the transfer is made.
Getting Help from a Family Farm Succession Planning Lawyer
The Law Office of Michael Robinson, P.C. has worked with many families to facilitate the transfer of farmland while avoiding estate tax. We have also helped families to find ways to protect farmland and other valuable assets during the course of the life of the farm owner.
To find out more about the ways in which our legal team can assist you with family farm succession planning, join us for a free seminar. You can also give us a call at (585) 546-1734 or contact us online to get your personalized plan started.