Minding Ag's Business

Considerations Before You Hire an Estate Planner

With this post I continue my ongoing discussion with Lance Woodbury, a professional mediator and experienced family business adviser from Garden City, Kansas. He writes columns for both DTN and our sister publication, The Progressive Farmer. He will also be presenting at the DTN-Progressive Farmer Ag Summit in Chicago Dec. 5-7 www.dtnagsummit.com.

Lance, you've always stressed that farming differs from other occupations, in part because it links us to generations who cared for the same land. You likely have family legends of hardships and sacrifices made by your grandparents or parents to keep the farm intact through economic panics and weather catastrophes. In other words, it's an occupation with traditions and assets passed on from one generation to the next.

In fact, you recently wrote a couple of articles on land ownership – the benefits, legacy and even problems that accompany its possession and transfer. Many CPAs and estate planners ask counselors like you to get a family consensus on how to handle ownership before they even attempt to design the legal and tax plan. It can save the family hours of unnecessary legal bills. Where do you start in that process? What are some of the practical ways that families consider the physical transition of land?

Woodbury: Marcia, there are a few ways to move the land from one generation to the next, here are some brief thoughts on each.

--Sell land to the next generation.

I don’t see this frequently, but some families ask the next generation to buy the land. The benefit of this approach is the next generation has “skin in the game” by way of a financial commitment. It also provides capital to the senior generation. However, it may be difficult for the next generation to acquire the money needed to buy land. It also doesn’t take advantage of estate tax exemptions that can benefit the family.

--Give specific parcels of land to the next generation.

This strategy is more common and involves identifying the actual acres that will go to each of the kids. The benefit is a relatively clean transition in which the kids each have something of their own. However, since no two pieces of land are exactly the same, it can be difficult to achieve a sense of equality. Is the “home place” worth more because of its emotional significance?

--Place the land in an entity and give shares to the next generation.

Land is placed in a legal entity (an LLC or LLP, for example). Shares of the entity can then be gifted to the next generation, which can allow for equal distributions and takes advantage of discounting opportunities which you’ve recently written about. While this strategy can help hold the land together for future generations, it also turns siblings into land business partners and requires good communication, governance and conflict resolution mechanisms.

Taylor: Lance, speaking of “conflict resolution,” how do families solve conflicts that arise with joint land ownership? Disputes over "fair" rents have been especially contentious in recent years.

Some family members have undivided interests in land, where they inherited a parcel of land together, while other family members are joint owners in entities that force them to be partners.

Woodbury: Marcia, two tools are helpful when considering the joint ownership of land. For direct ownership of land, a “right of first refusal” gives someone, usually a family member, the right to match an outsider’s (non-family member) offer to buy land. In other words, if someone wants to sell land, they are required to first offer the land to their relative. This at least provides an opportunity for the land to stay in the family.

Another tool that is useful when land is held in an entity is a buy-sell agreement. The agreement spells out how people can transfer or sell their shares. It might stipulate how the price is determined, the length of the payout and interest rate used in the financing process. The point with both tools is to help people understand how they might get out of business together, should the need arise. The tools help to limit surprises that can cause conflict in family owned businesses.

I mention these practical strategies is that land is often a sacred investment for families and is bound up with history, emotions and future opportunities. Carefully consider any land transition strategies, as the implications can have an impact on families for generations.

Taylor: Lance, you've touched on some of the tax as well as emotional issues family need to consider. Sharing ownership when family members hold vastly different attitudes or economic circumstances is one of the most troubling issues in family estate planning. Let's hear from readers, as their comments and experiences are welcome.

To read Lance's latest columns on the emotions surrounding land ownership, go to https://www.dtnpf.com/… and https://www.dtnpf.com/agriculture/web/ag/news/article/2016/10/20/land-liability

 

Follow Marcia Taylor on Twitter @MarciaZTaylor

 

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