Farming families have special considerations when it comes to estate planning. If you want your children to inherit the farm when you die or are no longer able to run the business, smart structuring of your will and other legal documents can ease the transition for both generations.
Tennessee farm owners should become familiar with the state’s provisions and resources for farm transfer and succession. These are some of the most common estate planning considerations in this situation.
Creating an LLC
Structuring the family farm as a limited liability company not only shields your personal assets from business debts and judgments, but also provides an orderly ownership transfer from one generation to the next. With an LLC, the separate business entity owns the land, machinery and assets of the farm and can conduct the affairs of the business, such as signing contracts. Owners, known as members, hold shares in the business and can transfer and purchase these shares among one another.
Many family farms successfully transfer ownership in phases. For example, a son or daughter may take on a small part of the operation after graduating college. You can create a five- to 10-year business plan for the transition that accounts for everyone’s goals and expectations.
Establishing a retirement fund
You may use an estate plan to create a stream of income for the older generation as you step aside from the daily operations of the farm. Although this will likely be less than the salary you once drew from the business, careful planning can ensure that you have the funds to live comfortably as you age without compromising the future of your family farm.
According to data published by Farm Journal, fewer than 20% of farm owners have a succession plan, even though 80% plan to pass the farm down to their children. Start the conversation with your family to avoid legal and financial challenges during a stressful time of life.