We will continue with our discussion on estate planning steps that farm families should take so as to ensure their family, financial, and farm goals are met.

Perhaps the most important step is to identify the succession goals that you have for your farming operation. Although each farming operation is unique, it has been my experience that most family farms are owned by parents who have at least one child who they desire, and indeed does desire, to continue the operation.
Often times though, there are other children who have no interest in farming. For instance, I have four siblings, none of whom have an interest in farming. Most likely, most or all will want liquidity and not a share of the operation. Thus, unless my parents were to devise to me a majority of the farming operation, it will be a difficult task for me to continue our current farm operation unless proper planning is performed.

Someone once said that “fair does not always mean equal”. Parents should recognize that if a certain child(ren) have contributed to the farming operation and want to continue the operation, then a fair distribution among their children is probably not going to be equal.

However, even under a non equal distribution, the child(ren) wanting to continue the operation still may have too hard of a row to hoe. For example, let’s say my parents follow the above stated mantra and leave me 40 percent of the farming operation, and my other four siblings 15 percent each. This still puts me in the position of having to buy out 60 percent of the farming operation almost immediately after their death. Unless I win the lottery, I doubt I could do such.

Fortunately, there are two tools in the estate planning tool box that help give parity to all children, and give the farming child(ren) a better chance to continue the operation.

•Life insurance: I can’t stress enough how important a life insurance policy on both parents is. A life insurance policy enables parents to accomplish two goals. First, the proceeds can be paid to the non-farming children allowing more farm assets to pass to the farming child(ren). Second, it provides the non-farming child(ren) with a quick disbursement of inheritance.

Children, which may afford more time for the farming child(ren) to work on buying out the non-farming child(ren).

•Buy-sell agreements: These agreements can be set in place whereas the farming child(ren) have the ability to buy out the non farming child(ren) over a period of time after the death of the parents. So, not only does it allow the farming child(ren) time to arrange finances to achieve the purchase, but the non farming child(ren) are not necessary compensated less, they merely have their inheritance delayed.

As you can see, the life insurance and buy sell agreements really work well together in that it allows parents to give more equal of an inheritance and provide the farming child(ren) a better chance at continuing the farming operation. Life insurance may be costly, and sometimes hard to obtain, but the buy-sell agreement is merely forming the proper documentation in your estate plan.

To contact John J. Schwarz, II, call 260-665-9779 or e-mail him at jschwarz@cresslaw.com These articles are for general informational purposes only. If you have a specific legal question, you should consult an attorney.