If you have a farm, you have three types of assets that you must distribute in your estate, (1) general assets, (2) real estate, and (3) business operating assets. A recent article suggests implementing a separate plan for each of these three asset categories, and offers tips for disposing of your real estate.
When considering the real estate itself, be sure to have a clear plan for its distribution. If your farmland does not lend itself to being partitioned off, another solution is to auction off the land and divide the money between your heirs. If you have one child who is interested in continuing the family business, create an agreement where, upon your death, the other children will sell their interests to that child. This plan could be laid out in the farm’s operating agreement.
You may also choose to gift the land away before your death to reduce your taxable estate. Because land can easily be partitioned off, the owner can transfer land periodically and in small portions to the next generation. These separate gifts allow the owner to transfer the entire portion of land to several beneficiaries without incurring gift tax.
If you are worried that your heirs may not be financially ready to take on the farm, consider deflecting future income. Through this strategy, families can transition a portion of their annual income to their heirs. Not only does this provide assistance to the younger generations, but it also helps the parents to transition their taxable income into the lower tax brackets of their heirs.
For assistance in passing on your farm, contact us at (626) 696-3145.
