It’s very common in family farms with multiple children to have one or more of the children become involved with the operation while other children choose to move away and work off farm.
The farming children may jointly own machinery with their parents, have discounted purchase options through the parents’ will and possibly life insurance on the parents to buy out their siblings. It should work if everything goes according to plan, but what if a farming child should predecease their parents?
Succession planning can be hard enough under normal circumstances, but it can be even more difficult when a farming couple outlives an heir. Farming families should be proactive and address this contingency and have a plan in place for what everyone hopes will never happens.
Here are a few things to consider:
• Discuss Your Child’s Will – Sit down with your child and their spouse to talk through this scenario and adjust your estate strategies accordingly. Keep in mind that if your child dies first, their share of your estate should pass to their children, not their spouse. Remind your child that it’s their responsibility to take care of their family through their own estate.
• Make a Plan for Gifted Acres & Shared Assets – You and your child need to prepare a plan for any gifted acres, shared machinery and any other acquired assets. This can include rental and purchase options for their kids or you if you’re still farming.
• Suggest Your Child Acquire Life Insurance – Low-cost term insurance on your child can forestall a number of problems. A life insurance payout will help your child’s spouse and kids while protecting the family operation.
• Ensure Their Life Insurance Policy on You is in Order – Don’t forget about their life insurance policy on you. Who will own and control it if they die before you? Who will continue to make the premium payments? Policy ownership typically transfers through the will, but it’s prudent to explicitly spell out the successor owner of the policy.
• Consider Their Spouse’s Future – Could their spouse one day remarry? Measures should be taken to avoid any complications regarding ownership and a possible stepparent of your grandchildren. Your child should make a provision in their will to hold their farming land and assets in trust upon their death. Their spouse can receive income from the farm, but the land gets preserved for their children.
by Enrico Villamaino