Passing on your farming/ranching heritage
Most farmers and ranchers want to leave a farming or ranching legacy for their families and coming generations to enjoy, says David Fernandez, Ph.D., Cooperative Extension Program livestock specialist at the University of Arkansas at Pine Bluff. But, many farmers and ranchers do nothing and figure they will let the kids figure it out.
"Sadly, this is far too common especially among small and minority farmers and ranchers," says Fernandez. "If ranchers and farmers do not have a plan, the state of Arkansas has one" says Fernandez. With the average age of an Arkansas farmer or rancher approaching 55, the time to plan is now while things are a little slower on the farm as winter approaches.
The farm is considered a business, and 86 percent of all Arkansas farms are sole proprietorship (not a LLC, S or C corporation), says Fernandez. So, the company dies with the farmer or rancher. No transactions can be completed until after the estate has been settled and creditors' claims satisfied.
"Your family will receive up to $1,000 from the estate to pay bills until after the court decides how your estate should be divided," says Fernandez. Partnerships face a similar problem.
If the farm or ranch has enough money to satisfy bills, the farm real estate passes on to the heirs. But who are your heirs?
According to Arkansas State Code (A.C.A. & 28-9-214) your children, not your surviving spouse, are your heirs (although your spouse does have certain rights called dower or courtesy rights). If you have no children and have been married for three or more years, your spouse is your heir. If you have been married less than three years, your spouse gets half and your parents get half. The situation becomes more complicated if your parents are not living. Their half goes to your siblings.
The end result is Heir Property, property that is controlled by multiple heirs with various numbers of shares of interest in the ranch you leave behind. While many families are able to share the management, others are not. Many farms are no longer farmed, and many younger heirs are not able to farm on the family farm because the heirs cannot agree upon who should be allowed to farm and what the financial return to the heirs should be. Eventually one or more heirs may file a partition suit demanding the farm be divided or sold and the proceeds divided based upon the number of shares of the property to which each is entitled.
"In short, your farm or ranch is divided and sold bringing your family's farming legacy to an end," says Fernandez.
Creating a will is often stressful. Professional estate planners and attorneys can help you create a document that is fair and equitable to all of your heirs. Specific insurance policies allow you to provide something to the heirs who do not wish to farm while giving the farm to those interested in managing it along with a little money to help them get started. Or, you might change your business structure to a corporation or LLC.
Taking the time to plan for the future will ensure your farming heritage can be a legacy for many generations to enjoy, says Fernandez.
Information in this article should not be considered an authoritative basis for interpreting the laws of the state of Arkansas. It is intended to help a person better understand ownership and be prepared to use the professional services of an attorney.