New York Estate Planning & Elder Law Blog
ESTATE PLAN AND CONTINUATION OF FARM PLAN
No doubt that anymore the running of a family farm is much like running a small business with other family members intimately involved. Often enough the continuation of the family farm requires that the current and main farmer, much like the ‘president and CEO’ of a small business, think ahead and plan for the transition of the farm to the next generation. Unlike a small business, however, the planning for the transition of a farm involves a recognition of a tradition that does not usually come into play with the transition of a small business. The issue of tradition is something that even the best lawyer in the world cannot advise you on. But a lawyer can help bring form to your intentions, so that when you do pass on the torch to the next generation it will be smooth and seamless. It requires the he use of traditional estate planning tools, including a combination of tools such as wills, trusts, powers of attorney or any other legal device or document, as deemed best by you in consultation with your estate planning attorney.
In addition, transition of the farm requires you to have a business succession plan, as the farm, just like a small business, is almost assuredly a legal entity. Family owned and operated farms pass from generation to generation much less than tradition would have you believe. Only approximately 30 percent of family run businesses successfully transition from one generation to the next. It is likely that because of this statistic that those in attendance at the 2016 American Farm Bureau Federation’s Annual Convention and IDEAg convention held this year in Orlando, Florida in January heard speeches in regards to the wisdom of creating a farm or business succession plan coupled with proper estate planning to insure the continued viability of family farms.
FIRST STEP AND BEYOND
After meeting with an estate planning attorney, it is likely that one of the first things you must do is to value your farm. The federal government taxes the excess of any property above the exemption rate at 40 percent. The 2016 exemption rate is 5.45 million dollars. While the exemption may seem high, so is the taxation rate. This may not be an issue, but it may depending on your individual farm. There are legal and effective ways of avoiding those taxation rates. Once you understand what you own and clearly spell out what your farm is, it is best to decide what your intentions are.
While many farms are indeed just that – farms – many farms also have a public access component to them, where a family will come to the farm for the day with young kids to pick apples or pumpkins. Some of those same type farms also have a band stand, play areas for kids and a store that sells things like fresh apple cider and the like. If this is the case, it should be asked whether there is a need to allow the farm and the public access side of the farm to operate as two separate but related entities. After you understand what you own, what to do with what you own, you then have to spell out your business succession plan. This helps to direct capital to the assets that need it, allows for the sale of other assets that may be a drain and to allow for loans, leases or perhaps allows for secured transactions on certain assets. Finally, after consultation with your estate planning attorney it is best to speak with all of the affected parties and let them know of your intentions.