A family farm or ranch may be a treasured possession, but without effective estate planning, this treasure can turn to rust. Without any Will, or with the most common type of Will, ownership of family farms gets split among children and grandchildren through each passing generation. As each person dies, to correctly transfer the family farm requires the expense and frustration of probate, even though the goal is never to sell the asset. Wouldn’t it be better to plan to avoid probate at all?
A related problem is that as ownership subdivides, more people are required to agree and work cooperatively together if revenue and expenses are going to be shared fairly. In reality, usually after the passing of the patriarch or matriarch, there is at least one member of the family who won’t share the expense and burdens, and almost always, the major role of management of the family farm or ranch falls on one person. This person gets the headaches, but no benefits.
The best solution for most families involves creating a family limited liability corporation. If the LLC owns the property, as a member of the LLC passes away, it is not necessary to probate in order to transfer the LLC interest. Further, problems of management, sharing expenses, and paying taxes are covered by the rules of the LLC. An additional benefit is that if one family member has creditor problems, that problem will not threaten the family’s ownership of the farm or ranch. More on that next week.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.
