Farm and Ranch families often face a difficult decision when looking ahead to the next generation of land and animal managers. One child, or heir, may wish to stay on the property and continue the family tradition while the other siblings have designs on running a law practice in the city, moving to a different state with their spouse, or simply owning another farm or ranch altogether. When considering the options for “equal” inheritances to each of these diverse heirs, major factors should be taken into account.
1) Splitting management/investment to only the children who wish to remain on the farm or ranch: When one child wishes to continue the work on the family investment, it is usually best to vest management and control of the operation in their hands alone. This can be accomplished in a couple of different ways, but the outcome is still the same—Fund inheritances to the heirs that leave the farm. One way to fund inheritance of non-ranching heirs is through the sale of assets or property that are not essential to the farming and ranching operation for the heir remaining on the farm. An apartment building investment in town, or old machinery not in use, or even farm ground that is not in use or beyond the capabilities of the new farmer can be sold to make up the difference in value of inheritance. A more common way to fund off-farm inheritances is to require payments from the on-farm heir to the off-farm heirs during the years they farm the property, either in perpetuity or until a certain amount is met.
2) Return on cash inheritance, such as in the sale of non-essential farm and ranch property or life insurance proceeds, may be higher than return on farm operation inheritance, although not intrinsically more “valuable.”: If the heirs remaining on the farm can expect a certain percentage of return value on the assets they’ve inherited (equipment, animals, land title, buildings, etc.), this should be compared to the percentage return on any cash inheritance given to heirs leaving the family ranch. For example, while Heir A who leaves the farm may receive cash inheritance in the value of roughly half of what Heir B receives in assets for staying on the farm, Heir A’s return on cash may be higher than Heir B’s return on farm assets.
Making time to discuss and plan for the eventualities in your farm and ranch business will help to alleviate stress and turmoil of “equality” in inheritances between your on and off farm heirs. Through the use of estate planning, business entity structures, and careful consideration of your families goals, The Law Office of Nathaniel Gilbert, LLC can help to maintain and grow your family farm and ranch through several generations.