How Can I Pass My Farm on to Heirs?

By Marie Murdock

Whether inherited from your relatives or acquired during your lifetime, several factors may influence your decision regarding the method you choose to convey a family farm to your heirs. Future tax consequences may arise based on the profitability or value of your farming business, as well as the difference between the value of the land when you purchased it and the value when your heirs acquire the property. You may desire to discuss estate tax consequences or the impact of capital gains taxes with your accountant prior to determining which method to choose.

Whether inherited from your relatives or acquired during your lifetime, several factors may influence your decision regarding the method you choose to convey a family farm to your heirs. Future tax consequences may arise based on the profitability or value of your farming business, as well as the difference between the value of the land when you purchased it and the value when your heirs acquire the property. You may desire to discuss estate tax consequences or the impact of capital gains taxes with your accountant prior to determining which method to choose.

Last Will and Testament

One of your children may show an interest in continuing the business, working side by side with you in the day-to-day farm operations, whereas another may not. Preparing a last will and testament allows you the freedom to determine which of your heirs gets what property, or even who may receive a larger percentage interest in the property. Keep in mind if you own several tracts of land and leave each to a different heir, you should include legal land descriptions, which are generally in your deed, so that there is no confusion as to which property is being devised or inherited by each heir. Of course, based on state law and/or the terms of your will, the estate executor must pay legitimate estate creditors first, or estate debts could become a claim or lien against the property.

Protect your loved ones by a legally binding will. Make a Will Online Now

Business Entity

A corporation, partnership or limited liability company made up of yourself and other family members, who own shares or interests in the company, can also own a family farm. Over the course of time, you may choose to gift or transfer your shares to your heirs to continue operation of the business. If you were to die while owning shares or interests, your heirs might inherit them according to the terms of your will. If you do not specify how you wish to transfer your shares in your will, the terms of the corporate bylaws or of a limited liability company’s operating agreement could determine the actual distribution of your interests.

Trust Estate

You can also establish a family trust prior to your death, or a testamentary trust under your will, for your assets. There are various types of trusts; however, generally, a written trust agreement, whether set out in your will or created during your lifetime, establishes how property passes, under what conditions the trust terminates and names a trustee to manage the trust. If you form a trust for your farm during your lifetime, make sure the deed of the farm names the trustee as holding the property for the benefit of the trust. For example, the deed should read, Joe Jones, trustee for Jim and Bob Farm Trust.

Gift

Federal law generally specifies an amount, in cash or other assets, which an individual may gift away per year per person without being subject to gift tax. If you choose this method to transfer the farm to your heirs, it could take some time, depending on the number of heirs and the value of your farm. Over the course of a few years, however, it may be possible to gift or deed away specified percentage interests to each heir annually so that they all eventually own the entire farm without you having to pay gift tax.

Intestate Succession

Although estate planning is often considered complicated, some people simply do nothing to transfer property to heirs. A state's laws of intestate succession determine how property passes when someone dies without a will. Surviving spouses and children are primary takers of property upon death; however, laws may vary greatly from state to state as to how much your spouse gets and how much is shared with surviving children. If you don't make a will, you should review your state's laws if you are concerned who will inherit your farm.

Protect your loved ones by a legally binding will. Make a Will Online Now
How to Title Assets for a Trust

References

Resources

Related articles

Dilution of Assets Through Inheritance

Large estates rarely stay intact over many generations, typically because the assets are diluted as each generation leaves its assets to the next. For example, a large tract of land may be split between children when the owner dies, and then those children may split their shares between their own children. You can promote or avoid the dilution of your assets after you die by using several estate planning vehicles.

Tax Tips on Wills

When you die, your property may be taxed both before and after it is distributed to your beneficiaries. A well-written last will and testament combined with smart tax strategies can considerably reduce the tax burden on both your estate and your beneficiaries. Estates can be taxed at both the state and federal level, and state tax laws vary somewhat from state to state.

How to Keep Heirs From Getting All the Money at Once

If you die without a last will and testament, state laws of inheritance control who acquires your assets, and your entire estate will be disbursed to them. Individuals named as devisees or beneficiaries in your will generally receive their full share upon probate. However, creating a trust estate during your lifetime or through your will may provide for incremental future distributions to minor children, special needs individuals or to others you designate to inherit.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Inheritances and Family Trusts

Probate can be a difficult process even with the simplest of estates and few heirs. That process can quickly become ...

How to Split Real Property Inheritance Between Non-Relatives

Generally speaking, you should leave a last will and testament if you wish to divide your property among unrelated ...

Estate Preparation

Your estate includes the property you leave behind when you die. Generally, this property is distributed according to ...

How Is a Corporation Passed to Heirs?

Although the actual process of transferring a corporation to your heirs may be relatively easy, choosing a method of ...

Browse by category