Dear Michael: We have four children in all. We have two that would like to farm and ranch and two others who likely would not. The two interested are just newly married and one has a child from a previous marriage. None of them are over the age of 30.
We are not sure if this operation is big enough to support us and both children, especially is they have more children in the future. There is enough work to go around but as we are still quite young and we have managed until now, we can make it work.
How do we set up an estate plan with so many possible variables? What happens if one or both of our new daughters-in-law do not like country living? How do we make certain one can succeed, but if not that one then a second child should receive the same opportunity? – The Future Is Unclear
Dear Future Is Unclear: The phrase “The Future is Unclear” comes from that little black ball you used to shake as a child and various messages would float to the surface. Kind of like a portable fortune teller.
Often, estate planning can feel like you are still just shaking that black ball and hoping it gives you the right answer.
When I meet with my clients, they need to think about all the possible outcomes when they have a situation such as this.
Let’s say you both die in the next five years and Son A has stayed on the farm/ranch with you and is the farm heir apparent. But his wife decides she does not like rural life and determines they should give up ranching and take the jobs they had before coming home after seven years.
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You can have a will that states if Son A should vacate this position, then Son B will then be able to come in and continue the ranch. Now Son B may have to buy any machinery or livestock Son A has accumulated in his short time there, but Son B should not have to pay more than the value you had at the time of your death.
The problem with the whole plan is if Son A has borrowed against the value of the farm/ranch operation, then it can become complicated quickly.
The answer to this would be to not allow him to use the farm as collateral until he has shown his staying power on the ranch – say to age 50 or 15 years past your death– whichever occurs first. For this to happen the farm/ranchland would have to be placed in trust, via your will, until this time, or any other conditions, have elapsed or been met.
What happens if there is farm/ranch debt that Son A incurs from your estate? If this is a significant sum, he is going to need to work with the trustee of the land trust to use the land – free of charge or a lower rent rate – so he can meet these debt payments. If he should leave in the future, he is entitled to a return of those payments made on the death.
To be honest with you, the best solution is to have enough life insurance to pay off your debts when you die so the land goes into the trust without encumbrances.
You might also consider using a second-to-die life insurance – one of the least expensive whole life products out there – to provide an inheritance for Son B or Daughters C and D. This is so they will not be watching Son A (or Son B) run the operation. Son A will then have the option of taking the money from the life insurance and letting Son B do the farming/ranching if life changes.
Nothing quite solves estate problems like money. And nothing provides liquidity at death as well as having life insurance. It shows up “exactly” when it is needed. As farm estates have grown, the offsets with non-farming heirs have grown as well.
Plan accordingly or someday you might look down on a family torn apart.
Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota. Email him at KeeptheFamilyFarm@gmail.com.