Family farm estate planning is complex, but it is vital for residents of Michigan’s shoreline communities to make sure they have a plan to protect the farmland they own. If you have a family farm, you likely want to hand that farm down through the generations. Biddinger, Bitzer & Estelle will help you to use the right legal tools to ensure that can happen without risk of the farm being lost.
Why Family Farm Estate Planning is Important
Estate planning is important whenever you have assets that you want to pass on to the next generation. However, farms present unique complications. One big issue is that farm owners can seem wealthy on paper, even if they aren’t really wealthy.
This happens because land appreciates in value. A farm owner who has hundreds of acres of land could appear to be worth many millions of dollars if the land his farm is sitting on is located in an area where land values are very high. The land may be worth much more than when it was purchased early in the farm owner’s life, or even generations before.
The high value of the land- and the fact it makes the farm owner appear to be worth a lot of money- is a problem because the farm owner’s estate could end up owing estate tax on the farm when the owner passes away. Estate taxes are assessed on larger estates when property and assets are passed on to anyone other than a spouse. As of 2017, estate tax would be triggered once an estate was worth more than $5.49 million. While this might seem like a lot of money, a farmer could have land and farm equipment worth that much, but have few or no liquid assets.
If the farm owner passes away and wants to hand the farm down to children, the amount of estate tax that is due will be based on the estimated value of land and equipment in the current marketplace, not based on what the land may have been worth decades or generations ago when it was first purchased. A huge tax bill could result, and there may be no money in the estate to pay the tax bill. The only options when this happens would be to either sell some or all of the farmland or to take out a loan. And, often taking out a loan is not actually an option because the loan would need to be much too high to reasonably repay, given the proceeds from the farm.
There are rules in place that are designed to protect families from having to sell farmland that has become valuable, rather than passing the farm on to the next generation. A special use valuation makes it possible to reduce the value of a gross estate by an additional $1.1 million, provided requirements are met such as a family member continuing to participate in managing the farm, and the land continuing to be farmed for at least a 10-year period of time after the death occurs that would have triggered the tax.
While these rules can help, there are still many situations where passing down a family farm does lead to a big estate tax bill that cannot be paid without selling the land. You don’t want this to happen to your farm, nor do you want your farm to be vulnerable to any other possible causes of loss during your lifetime or after your death. This means you should work with an experienced attorney to assess the risks and to implement the right legal plan to mitigate and minimize those risks.
Getting Help from A Family Farm Estate Planning Lawyer
There are 210 miles of Michigan mainland shoreline along Lake Huron, and farm owners who live within Michigan’s shoreline communities deserve to be able to pass their land and farm operations down to the next generation. Biddinger, Bitzer & Estelle can help make that happen by working with you to protect your farm from loss due to estate tax, creditor claims and more. To find out how a family farm estate planning lawyer at our firm can help you, give us a call at (989) 872-5601 or contact us online today.