3 Estate Planning Mistakes Oklahoma Farmers Make (and How to Avoid Them)
Farming is more than a means of livelihood – it is about preserving a legacy and unique way of life. Unfortunately, many farmers fail to make an estate plan. The farm that has been passed down for generations then ends up being sold and converted into non-agricultural use, cutting the legacy short and ending the family’s unique lifestyle choice. Below are three common estate planning mistakes farmers and ranchers make and how to avoid them.
Mistake #1 – Failing to Plan
Farmers have complex estate planning needs. They may have children who want to continue the farming business and children who do not. They will be forced to decide who inherits the land, the equipment, the livestock, and other assets, all the while trying to keep things fair and equal. As a result, many farmers and ranchers cannot decide what to do and end up without any estate plan at all. Fortunately there are many estate planning options available to farmers that will allow you to fulfill your ultimate goals.
Mistake #2 – Relying on Joint Ownership
Many farmers believe that the easiest way to plan their estates and avoid probate is to own property in joint names with family members. However, farmland property that is jointly owned and enrolled in programs administered by the Department of Agriculture may result in subsidies being left on the table. Aside from this, joint ownership causes you to give up control of your real estate. Unlike other planning options, joint ownership may not be easy to change, since “undoing” joint ownership can have significant costs and tax implications. Holding real estate in the name of a business entity or a trust is a better option and will allow you to maximize subsidies, minimize liability, and retain control.
Mistake #3 – Overlooking Liquidity Needs
Incapacity and death are expensive and often require cash to pay expenses. But, farmland, farming equipment, personal residences, automobiles, and other personal effects are illiquid. Without properly planning for immediate and long-term cash needs, families will be forced to quickly sell land and equipment for pennies on the dollar.
Farmers have several options to choose from when creating a plan to manage debt and expenses after incapacity or death. Financial advisors, bankers, and insurance professionals can assist with securing lines of credit and the proper amount of disability insurance, long term care insurance, and life insurance. Attorneys can assist by creating life insurance trusts, business entities, and other more complex strategies like part gift/part sale arrangements in exchange for a note or private annuity.
Farmers live a different lifestyle and require specialized estate planning solutions. A team of advisors, including attorneys, accountants, insurance professionals, and financial advisors, can assist you in creating and maintaining a plan that will preserve your legacy and unique way of life. Please call our office if you have any questions about this type of planning and to arrange for a consultation.