Families that own a farm have more things to consider during the estate and will planning process that those that do not own this type of asset. Splitting up a family farm in any type of capacity is not an easy or straightforward process. During the estate planning process, it is important for families to determine how the farm operations will be sustained for future generations and how the division of the estate will take place among the children. There are three ways that you can choose to split a farm when you are involved in estate planning for this type of asset.
One of the common methods of succession involves an heir actually buying the farm form the parents. This normally takes place once the parents have reached the retirement age and no longer want to be responsible for overseeing the daily operations of the farm. The money that is exchanged for the purchase of the property is then added to the parent's estate. This means that the proceeds for the farm will be divided among the children depending on what the will states. The downside to choosing this option for splitting the farm among the children involves the recapturing of taxes. This reduces the total value of the proceeds from the farm.
Purchase after Death
It is also possible for an heir to choose to purchase the farm after the death of both parents. This allows for the capital gains tax to be eliminated and allows all heirs to get a higher amount of value when the proceeds are divided. This does mean that the heir wishing to buy the farm might have to pay a higher price than they would if the parents were still living. This will only be the case if the value of the farm has increased with time. It is possible for parents to state within their estate planning that the farm will be sold to an heir for a predetermined amount. Another benefit to this method involves parents having the ability to credit part of the purchase of the farm with sweat equity from the heir.
Splitting of Farm
It is also possible for the farm to be divided during the estate planning process without the sale of the farm in any way. This means that individual pieces of the property can be given to heirs. This can be done equally or can also involve giving all heirs undivided interest in all pieces of the property.Share