Many farmers want to avoid the topic of succession planning because they don’t want to hurt anyone’s feelings. Those who actually do make a plan sometimes proceed in secret with the attitude of letting the chips fall where they may. This is a sure way to initiate a legal battle over the value and control of the family farm. It’s better to have clear, open and honest communication about your goals for the farm’s ownership and operation with the next generation.
The following hot-button issues frequently send farm heirs to court:
- Does anyone have the right to purchase your land or machinery upon your death? If so, at what price? Fair market value, as determined by an agreed-upon appraiser, is a reasonable starting point. A public auction is rarely the best outcome for the farm.
If you want one of your family members to have a right to buy land or machinery after your death, you need to say so. If you want them to have a chance to buy it at a discounted price, you certainly need to say so.
Unintended consequences, regarding your trust, might occur if you name one child as the trustee of your land. If you intend for that trustee child to be able to purchase some or all of the trust’s property, you should say so. Absent specific language in the trust, state laws generally prohibit a trustee from participating in the purchase of trust property because of a conflict of interest.
- Is there a non-family successor to your operation? Many farmers are creating succession plans that allow a non-relative, such as a long-time tenant or trusted employee, to buy interests in the operation during retirement and upon death. Open communication is key, so the children don’t feel their parents were unduly influenced while they were off living in the city.
If city heirs are going to be absentee landlords, special attention to details is crucial to allow the non-related operation’s successor continued access to farm your family’s land, while your children earn fair value rent on the land, based on the formula you define.
- What about your house? What about your barns, pastures, shop and grain bins? Does one of your children get to live in your house? Do they have to pay rent, or is it part of their compensation for running the operations? Be specific.
If it’s your intent for one of your heirs or another non-relative successor to use the barn, pastures and shop, for little to no rent, that’s fine. Just say so. Often the bins, shop, etc., have been built on land that’s going to end up co-owned by multiple children.
Take steps now to obtain a survey and split off that land as a separate parcel to make it easy to transition control and ownership of the operation to one child while all of the children own the farmland.
- Outdated buy-sell agreements and estate plans can cause more trouble than if no documents existed at all. Review the governing documents of your farm business entities to make sure they are still a good fit and meet current goals. Farmland values change, family relationships change.
- If some of your children will be landlords and another (or non-related successor) will be a tenant, be specific about who sets cash rent rates and what to do if (or when) they cannot agree.
You might be tempted to include a no-contest clause in your will or trust that says, “he who sues gets nothing.” Courts in about half our states will not enforce no-contest clauses. Other tactics have a similar effect. Include language waiving attorney-client confidentiality with respect to your intent regarding a different, lesser or lack of inheritance left to one child. Consider a clause that all legal fees to defend a lawsuit brought by a child be charged against that child’s share.
Plan early, before your mental capacity becomes questionable. We can’t stop an heir from suing, but we can help you take steps to build a wall and make it easy to defend that future lawsuit so it quickly fails.