Farm Progress

A Family Farm Trust can convey background on why decisions are made, what factors were considered and guidance to the trustee

November 2, 2016

3 Min Read

What happens when grandpa’s farm is handed down? Some common questions and concerns center on developing a will or a trust, a farm management plan and a tax strategy with a goal of  making sure future generations will inherit the farm.

Creating and developing a plan and the legacy for keeping the farm in the family requires planning and specific strategies.

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A Family Farm Trust can convey background on why decisions are made, what factors were considered and guidance to the trustee.

 

The successful transition from one generation to the next is a journey.  It is critical to examine the wants and needs of the generation currently operating the farm.  Communication with the family is critical, even if difficult.  More likely than not, that generation wants and needs security, income, and a “say” regarding the operating of the farm, the oil and gas mineral interest (easements/ leases, etc.) and input on what should happen each crop season.  There are many obstacles and hurdles to overcome to grant the wishes of both generations.  Fortunately, they can be overcome.

Succession is a journey.  The transfer to ownership is the easiest step. Many people believe they only need a simple will, but ignore the reality that property passing by will goes through probat, which is not helpful for the family farm.

Ownership of the farm in a Limited Liability Company (“LLC”), which is owned by a trust can secure a successful transition to the next generation and can help with the succession of authority (who will take control) as well as how the income is spent and distributed to heirs.  By utilizing an LLC, an orderly transition of ownership to the next generation can occur and be beneficial tax-wise.

The journey should also include succession of relationships with key customers, vendors, equipment suppliers, grain customers and employees. Succession of knowledge in skills and know-how should also be planned for, as well as succession of leadership, a vision and daily and long-term management.

A Family Farm Trust can convey background on why decisions are made, what factors were considered and guidance to the trustee. 

The Family Farm LLC can be organized so that multiple families may own the trust which holds the farm. It can give voting control to a board of trustees made up of a representative from each family rather than splintering the ownership of the farm and the vote for farm decisions among many people.  It may be structured so only those people working on the farm have the right to vote on what happens each crop season.  For example, if grandpa and grandma wanted to leave the farm to the five children working on the farm, but want to take care of two other children, a “silo-type” Family Farm Trust can be written so that decisions for daily management is with those who work the farm, and decisions as to disposition of the mineral rights is by the board.

The important point in drafting a Family Farm LLC and Trust is to begin the journey, even if it’s uncomfortable to think or talk about. A trust can be made personal to the grantor so that the trustee stands in the shoes of the grantor, and controls the farm the way the grantor intends.

Wolper and Jasin are with the Emens and Wolper Law Fire in Columbus.

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