Preserving the Family Farm
In Northern Michigan, family farms are the largest asset of many family estates. These family farms have been held for generations – they reflect the blood, sweat and tears associated with years of hard work.
How these farms can continue to be handed down to future generations is a key component of the comprehensive estate plan.
First, as with other aspects of estate planning, the first step is a family discussion. While you may treasure your farm – for what it has meant to you – for what it has done for you – this may not be the outlook of the younger generation. To you, there is comfort and pride in knowing that your grandfather worked this property to provide for his family, which in turn your father or mother did, and which you have done. While it is an incredibly difficult discussion to have – it is vitally important. Do any of the next generation want the family farm.
Can the next generation afford to keep and maintain the property? Where do they live? Do they have the resources to maintain the property?
The Use of LLC’s:
A good vehicle for passing on the family owned farm is a Limited Liability Corporation. This type of closely held corporation permits the parents to maintain control of the use and operation of the land and business while allowing for an orderly transition to the next generation.
The LLC can own the land, the buildings and the equipment. The parents can own a majority of the membership interests and can serve as the Managers of the business during their lifetimes.
The minority membership interests can be purchased or gifted to the children over time. This allows the parents to gift significant estate assets to their children over their lifetime, thereby reducing the value of their estate for estate tax purposes. The children are given the opportunity to acquire ownership of the farm while they engage in a learning mode – over time learning the business.
This can also be used effectively when one or two of the children want to run the family farm and the other children prefer to take a less prominent role. The future farm managers can acquire or be gifted a larger membership interest and can assume the management of the operation when the parents are ready to step aside.
Using the appropriate legal tools, the family owned farm can remain in the family for generations – preserving the original vision of the elder generation and meeting the needs of the current and future generations.