Before the Industrial Revolution took full swing in New York, farm inheritances were simple. The family business got passed down from one generation to the next, until industrialization made things a little more complicated. Today, estate planning with a farm can get complex when not all family members are participatory members of the family farm. Dave Goeller of the University of Nebraska has published some tips in the latest issue of Cornhusker Economics for estate planning when it comes to this issue.
The complexities of estate planning when a farm is passed down to one or more heirs grows more complex when only one heir takes full management over the family farm. In an ideal situation, all siblings are relatively communicative with each other to work out an appropriate solution. Even in less than ideal situations however, there are a number of options to explore that would ensure each sibling receives the inheritance that was intended for them.
One option is for the farming heir to receive a cash payment by the non-farming heir for their contribution to the family business. The individual that stays to farm would be granted a compensation or salary for doing so. This presents a problem if the farm is asset rich but cash poor as is the case for many New York farms in today's economy.
Another option is a sweetheart rental agreement where the farmer pays the non-farming heir a minimal rent for being able to use the land. The farm then becomes the farmer's business, with the farmer assuming machinery leasing costs as well as other operation costs. Both parties would share generated revenue, but this option also has tax implications.
If the farming heir is unable to make lease payments on a cash poor but asset rich farm, an estate plan would be the next viable option. This allows for the farm to remain the family business, with accounting being considered for the value of the non-farming heir's contribution. The non- farming and farming heirs could also enter a joint ownership agreement of farm assets and leases, although this may leave the farming heir displeased if there is a low return of revenue on the farm. Another option is that the farming heir is left the farm assets, while the non-farming heir receives the non-farming assets and each goes their own separate ways.
Source: The Dairy Herd Network, "Dividing farm estates with the goal of equality," Oct. 31, 2011