Farmers have a variety of tools to manage their estate and plan their succession. Joe Koenen, a business expert at the University of Missouri Extension AG, says a revocable trust gives farmers some flexibility.
“If you’re a small farmer, a living or revocable trust works well because you avoid probate,” says Koenen.
He says an LLC can also be helpful.
“An LLC is a good tool because it holds the operation together,” says Koenen.
Planning can help manage the LLC when a generation passes.
“You have to have a plan when mom and dad are gone with how the shares are distributed and how they can buy out the others,” he says.
These tools can help farmers manage property taxes. Koenen says it’s mostly the big farms that are having to deal with it right now, but it’s still something all farmers should think about. He says that currently the estate tax thresholds are due to expire in 2025 and could revert to much lower amounts if not extended.
“Just because it’s not a problem now doesn’t mean you don’t have to worry about it,” he says.
All in all, the planning and the conversations go a long way.
“It’s something you should sit down and watch,” Koenen says.
People also read…
John Baker, an attorney at Iowa State University Extension, says these tools help families manage risk.
“Trusts are good tools,” he says. “SARLs are easy to form and they are good tools. It is a good risk management tool.
For example, Baker says that if a farm is an LLC, the business owns and insures a grain truck and the family member driving the truck is an employee, which can help limit risk exposure.
Another estate planning tool can be buy/sell agreements, in which farmers can designate the terms of the sale of farmland between heirs after their death, for example setting a timetable for an heir who wishes to farm the land redeems another heir who so desires. no intention of growing it. The agreement may also define the amount that will be paid for the land.
“You can set the terms, you can set the price,” says Baker.
He says it helps both those looking to cash in on their share of the land inheritance and those who want to exploit it.
“It gives liquidity to heirs and puts the asset base into a large enough unit to be economically viable,” says Baker.
He says there are “still quite a few” farmers who have incorporated their farms, but he says it’s done less frequently now because many of the tax advantages of incorporation are no longer in place. .
Koenen and Baker say there are experts who can help farmers through this process. Koenen gives lessons on the subject.
Talking to a financial planner or lawyer with experience in farm succession planning can help farm families understand their options and help them achieve their goals with their operation and future generations.
“There are legal tools available,” says Baker.