Most farmers want to leave their farms to their families to enjoy for generations to come, but without a plan this may not happen, says David Fernandez, Cooperative Extension Program livestock specialist at the University of Arkansas at Pine Bluff.
The state of Arkansas has a plan for those who die without a will, but good farm business records can help you plan your estate so it goes to your heirs the way you want it to go, he said.
A farm is a business. Some 86 percent of all Arkansas farmers are sole proprietors — not a LLC, S or C corporations — said Fernandez. When a sole proprietor dies, the company dies. No transactions can be completed until the estate has been settled and creditors’ claims have been satisfied.
Good business records can help heirs prove which creditors have been paid as well as those that have not. Heirs taking over the farm operation can use your business records to help them plan and apply for operating loans.
Without a will, the court decides how an estate should be divided, a process that can take more than six months. In the meantime, the family will only receive up to $1,000 from the estate to pay their bills or buy food.
Partnerships face a similar problem. When a partner dies, the partnership is dissolved. The farm partnership cannot continue until the deceased partner’s estate is settled, Fernandez said. In the meantime, the living partners may have to negotiate a purchase of the business from the heirs who may have unrealistic expectations of the value of the business. Sometimes, inexperienced heirs may want to make important business decisions with little knowledge. Good business records can help heirs understand the true value of the business and make better business decisions.
Corporate farm business structures allow farm families to pass along their farming heritage by dividing shares of the business among heirs. The farm business does not end with the death of any of the shareholders. Business decisions are made by the board of directors who are usually the rest of the family. Business records are essential for the family corporation in making decisions whether or not a shareholder has died.
Take the time to plan for the future now, Fernandez said, so that your farming heritage is a legacy for future generation.
For more information on business planning, contact Fernandez at (870) 575-7214 or email at [email protected].
Or, contact a UAPB Small Farm Program associate specializing in business planning — Arlanda Jacobs, Lee, Monroe, Phillips and Arkansas counties, (870) 714 5531; Stephan Walker, Pulaski, Lonoke, Jefferson and Lincoln counties, (870) 575-7237; or Kandi Williams, Howard, Sevier, Hempstead, Little River, Miller and Lafayette counties, (903) 306 8663.