We recently had a conversation in our office about how important it is for our client’s children and grandchildren to have an estate plan when they become owners of a family farm operation.

Jim and Susan are transitioning their farm business to their sons Tim and Chad. They are doing this through a plan that includes a partial gift and a partial sale of their farm entity.

Now that Tim and Chad are owners of the farm, it is important that they have their own estate plans protecting the farm in the event of their incapacity or death.

For example, if Tim or Chad were to become incapacitated without an estate plan, a court would need to appoint a conservator for them. The conservator would manage their interest in the farm and would need to provide accountings back to the court.

The appointment of the conservator could be time consuming and may result in a delay in the business operations.

In the event of incapacity, it is best that someone is able to act immediately for the incapacitated person. This can be done using a power of attorney that names someone to make financial and business decisions; a revocable trust that provides instructions for the management of their interest; and a buy-sell agreement that provides the rights of the other farm owners in the event of incapacity, including terms for purchasing a disabled owner’s interest in the farm.

Additionally, Jim, Susan and their sons have expressed that they want the farm ownership to stay in the family. As owners of the farm, it is important for Tim and Chad to have plans stating how their interest in the farm operation will be managed and distributed after their death.

These instructions should be set forth in their wills, revocable trusts and the buy-sell agreement. The wills and revocable trusts provide how their interest is distributed upon their deaths. The buy-sell agreement provides how their interest in the farm operation is managed upon their death and the rights and terms the other members would have to purchase their interest in the farm.

In this case, it would be important for Tim and Chad to make it clear that their interest in the farm would be distributed to their children or, if they did not have children, to the descendants of Jim and Susan.

This can be a complicated matter, especially when seeking to ensure a spouse is adequately provided for, so good counsel is recommended.

Balzarini is an attorney at law with Miller Legal Strategic Planning Centers, P.A. Contact him at [email protected].