Recently I fielded a question from a reader, a widow in fact, expressing desire to gift the family farm to her kids. I asked her why she wants to gift the land now? And, what her ultimate goals are for the family farm?

She responded simply: I want certainty my kids get the farm. I want them to have it now. But, I still need the income to live off, and the house to live in. I will sleep better at night knowing this is done.  

She reached out to me after reading a prior article on how to transfer assets to your heirs.  In particular, she requested more info on how to gift them the farm but retain a life estate.

Life estate transfer of real estate

A retained life estate is a legal arrangement to transfer assets, typically a house and/or land, that you want to keep in the family. The grantor executes a deed transferring the property to the life estate, then upon death, the deed will be transferred and owned by the remainderman (the kids).

Typically, this transfer is from parents to children, with the parents retaining the right to live in the home and/or receive income rights, such as land rent, until death at which time the right passes automatically to the children.

After meeting with this reader and her legal advisor, we discussed the advantages and disadvantages and how well they complement the goals in her family farm transition:

Advantages

Disadvantages

We also discussed more advanced planning strategies she might consider to address any concern over future management, or assurances the farm stays in the family, or what happens if one of the children predecease her? This may involve restructuring the land into a family entity (trust, land partnership) to serve as a better ownership structure to address future concerns the family farm stays together.

In this case, this particular reader is comfortable keeping things simple, and will simply deed her children the farm but trust they will do their own estate planning to address keeping the farm in the family.

Additional resources:

Life estate ownership of real estate, Berkshire Elder law center

The advantages and disadvantages of life estates, Ag county Farm Credit

Downey has been helping farmers and landowners for the last 21 years with their family farm transition, leasing strategies, finances, and general land consultation. He is the co-owner of Next Gen Ag Advocates and an associate of Farm Financial Strategies. Reach Mike at [email protected].

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.