Effectively planning to protect the family farm requires us to consider at least two types of planning. And the two types involve two different definitions of “save.”
1. Does it mean to transfer the farm and protect it from nursing home costs, estate taxes, or other risks that could cause the property to be sold or taken by creditors? OK, we have strategies to effectively do all of that.
2. Does it mean preserving it for future generations? This is an entirely different question. We might plan perfectly to transfer the farm and avoid the taxes, creditors, and other risks. However, once the kids get the farm, what then? If our goal is to keep it in the family, what risks do we face then? Perhaps the kids disagree on how to manage the farm. Maybe one child wants to sell or needs the money? Maybe a child faces a financial disaster and files bankruptcy. Will the other kids buy him out? Can they afford to buy him out?
These same issues go for other unique pieces of real estate. What about the family vacation home, lakehouse, or hunting land? Do we preserve it for future generations or just transfer it to the next generation and hope for the best?
Effective estate planning is much more than a simple transfer to the kids. An effective plan will consider your goals for the property many years, perhaps many generations after you’re gone. For more on this topic, check out our post “Keeping the Family Farm in the Family.”