Families who own a farm or are in the farming business may face difficulties when they begin to plan how they will pass their farm on to their family members. Many farming families struggle with how to treat all their heirs fairly while still accomplishing their specific goals of preserving the family farm. This difficulty is enhanced when some of the heirs are more interested in farming and preserving the farm while other heirs may not be as familiar or interested in farming practices.
Initial Temptation to Give Farm to the “Farm Child”
If you are a farming family, your initial temptation may be to give the farm to the farming-inclined heirs and give your liquid assets to the other less farming-inclined heirs. However, it is beneficial to consider distributing residual mineral future development in underground environmental rights in equal portion to each child. Many people in this situation consider severing off oil, gas, and wind resources to protect against one child receiving the “winning lottery ticket” and the other child getting nothing.
An Example of a Farm Bequest in Virginia
For example, a family owns a hobby farm in Powhatan, VA that has chickens, a few cows, horses, pigs, and other heritage livestock and they grow their own vegetables on their land. If the family sold this farm, it would sell for $450,000. The family comes to an estate attorney and tells the attorney they want to pass down the farm to their farming-inclined child (Child A) and want to give their IRAs, stock, and other liquidated assets, which total $350,000 to their other child (Child B). From the family’s perspective, this situation is a win-win because their children are getting relatively equal dollar amounts and the farm remains within the family. However, Attorney Van Smith has seen many twists and turns with this approach, which result in the children receiving unequal shares of the family’s assets. For example, Child A may end up selling the farm, which will cause him/her to become wealthier, causing some resentment from Child B. Alternatively, Child A may continue to maintain the farm, but may sell the mineral and environmental rights on the farm, thus creating a vast disparity in the wealth that Child A and Child B have received.
Divide the Mineral Rights with the “City Child”
Therefore, in order to ensure that both children receive equal shares, Attorney Van Smith suggests that the parents consider giving Child A exclusive use and ownership of the farm (as long as he/she uses the farm for its intended purposes) and divide the sale of mineral and environmental rights equally between Child A and Child B. In terms of liquidated assets, Child B should receive the majority, but Child A should receive some liquidated assets in order to maintain the farm.
Estate Planning for Farmers in Virginia
If you are a farm owner and are considering how to pass down your assets to your heirs, call Smith Strong at (804) 325-1245 or (757) 941-4298.