How Can I Pass My Farm on to Heirs?

It is important to develop a plan in advance of passing on the farm.

Many farmers pass on their operations to children or other heirs. This can be a difficult and technical process, especially after the death of the parents. It is imperative to have all plans and expectations fully developed and clarified well in advance of the farm being passed on. Since a farm involves a large sum of capital and assets, the assistance of a lawyer is necessary to make sure the operation is passed on both efficiently and in a manner that fulfills the farmer's wishes.

Things You'll Need

• Transfer plan
• Purchase agreement
• Will
• Life insurance

Instructions

1. Sit down with all heirs, family members and those affected by the decision to pass on the farm. Express your wishes and allow them to give their expectations. This is important in preventing siblings from fighting in the future.

2. Develop a transfer plan. This includes when the farm, land and equipment will be passed on and the conditions with which it will occur. Put the plan into writing. It is important for a document to exist that can be referred to later in the event of disputes.

3. Create a purchase agreement, if necessary. This can give the right for a heir to buy the farm from the parents within a certain time period or under particular conditions. A purchase agreement is often necessary to determine when and how much a heir will pay to buy out nonheirs and those that will not receive the farm, such as siblings. It is often best to consult the help of a lawyer when creating a purchase agreement.

4. Include the heirs in the will or living trust. This will make sure your wishes get executed in the event you are not there to do it yourself. File the trust with a lawyer to ensure it is not likely to get contested in court after the farmer's death.

5. Purchase life insurance. Many farms carry a significant amount of debt that can place a large burden on heirs. Life insurance money can be used to pay off the debt of the farm and ease complications for the heir, or to help buy out siblings who expect an inheritance but will not receive the farm.

6. Research the tax implications. A farm involves a large portion of assets, and the tax burden can be large on both the parties of the transfer if not handled properly. Consult a tax professional in advance to passing on the farm, as certain rules apply that are specific to agricultural inheritance.

References

• University of Minnesota Extension: Protecting On-Farm Heirs
• Ag Business Management: Tax Considerations When Transferring Asset

Resources

• Kansas Rural Center: Preparing to Pass on the Farm to the Kids