Estate planning for ranchers and farmers is incredibly important because of the nature of the assets in those estates. Most farmers and ranchers do not have many liquid assets, such as bank accounts and other forms of cash. Instead, most of their estate is invested in their ranch or farm and in order to perpetuate those endeavors a comprehensive estate plan is necessary. These are some of the most common estate planning mistakes of ranchers and farmers as well as how to avoid them.
Failing to Create or Update Estate Plan
Farmers and ranchers typically have more complex estate planning needs than in the typical estate planning process. In many cases, a farmer or rancher will have some children who want to continue the business and others that do not. The types of assets in a farm or ranch can also make splitting an estate much more difficult if you are trying to keep things equitable among your heirs.
Failing to create an estate plan in these situations is asking for serious problems and family strife when you pass away amongst your children and other heirs. Additionally, creating an estate plan but failing to update it as events in your life occur can lead to many unintended consequences regarding your estate that can be just as disastrous.
Relying on Joint Accounts or Beneficiary Designations
Many farmers and ranchers put as much of their estate into joint accounts or assets that have a beneficiary designation, but you cannot rely on these estate planning tools alone. One possible problem is that this approach may require you to pass on available subsidy money. In addition, placing farm or ranch assets in joint accounts means that you are giving up partial ownership of your business to others.
The better option in this situation is to place your farm or ranch in a business entity such as a corporation or partnership. It allows you to retain control and maximize possible government subsidies for your land. In addition, placing assets in accounts that pass through direct distributions are not protected from creditors or outside lawsuits.
Farms and ranches are known for being illiquid because the majority of the estate is invested in equipment and other necessities. However, incapacity and passing away can be expensive and require cash up front. Today, a funeral runs into the thousands of dollars. State and federal taxes, day to day expenses, medical bills, and administrative costs all need liquid assets. Not accounting for the liquid needs of your estate can cause serious problems for your heirs. It may even require that your family sell the farm or ranch to pay off the other expenses of the estate.
One common option is to get a life insurance policy, the proceeds of which will pay off the liquid costs of estate administration. Securing lines of credit, gifts, disability insurance, and annuities are also other options to ensure that your estate has the liquid assets necessary to handle the expenses of estate administration.