Old MacDonald Had a Farm, His Children Had a Fight

 JANUARY 7, 2014 

 

Nothing gives rise to a family fight as quickly as a family farm.  Even if none of the children farm, they will have different views about how to deal with their farm inheritance. If two or more children inherit a farm, some will want to sell it immediately, especially at today’s prices.   Some will agree to sell it but will only want to sell it to someone who will steward it carefully, like a long-time tenant or a family friend.  Some will want to keep it in the family, for economic reasons, emotional reasons or both.

 

Hopefully, the children can settle their differences, but sometimes they cannot.  Even if they settle their differences without resort to lawyers and litigation, the settlement process may affect their relationship with each other.  Without living parents to provide the glue, the family fabric may unravel as a result of the children’s shared farm inheritance.

 

Things can be even more complicated when one or more of the children do farm the land – or the land next door.  Often the farm child has put significant “sweat equity” into the farm, assuming that he will own it some day.  Sometimes the farm child and the parents share equipment or run their operations together, regardless of the fact that they each own different parcels.

 

If the farm parents die and have no Wills, all of their children will split their wealth. That means that each child will inherit the same interest in the land, whether the child actually farms it or whether the child lives inNew York Cityand doesn’t even come back toIowafor the Fair.

 

If theNew York Citychild wants to sell the land and gets his or her siblings to share that view, the land will be sold.  The farm child can buy it from his or her siblings, but he or she may not be able to afford it.  That could easily be the case if there are neighbors who want to bid on the land because it adjoins their own operations.  In another scenario, the farm child may buy the land but overreach to do it.  With a few bad crop years, the land could then be lost to foreclosure.  Under either scenario, the family relationship may already be lost.

 

A farmer with significant holdings can address these issues in a Will, but unfortunately, many farmers don’t.  In part, that is because there are no easy solutions.  It is natural to give the land to the child who has helped farm it – especially if that child has children of his own who may some day want to farm.  However, it takes a Will to make that happen.  If the parents have no Will, the farm child may end up with nothing to show for his hard work on the farm.

 

But, if the farm child gets the land, what do the other children get? Even if the children all love each other, family relationships can easily be strained if one child inherits millions of dollars of farmland and the others inherit little or nothing.  Similar strain can occur if the non-farm children inherit the equipment and decide to sell it, thereby crippling the farm child’s operation.

 

How about giving the farm child the right to rent the land from his siblings? That can work if the guidelines for setting the rent are clearly established.  If the parents say that the farm child is the only one who can rent the land, the farm child can rent it for $1 per acre since no one else would be eligible to rent the land at all.  That probably won’t play well around the Thanksgiving table!  On the other hand, the parent may want to give the farm child a somewhat reduced rent to reward that child for his sweat equity or to make sure the farm child can afford to farm the land.

 

The same issues arise if the farm child has the right to buy the land at a discount.  What if the farm child turns around and sells it, pocketing the difference between the discount price he paid and the real value of the land?  Again, that will not make for a happy Thanksgiving meal!

 

Maybe all of the children will get along, and the farm will stay in the family on terms that are acceptable to all of the children.  While that is ideal, it doesn’t always happen.  It is more likely to happen if the parent lays out a game plan in a Will and gets buy-in from the children.  But then what happens when the farm child gets divorced?   As you know the odds of that are about 50/50.

 

The non-farm siblings may be perfectly willing to let the farm child keep the farm, but they won’t be pleased to see it go to an ex-farm-spouse and her family.  In fact, the very idea might have the parents rolling in their graves, with the farm child and his siblings rolling (above ground) right beside them!

 

Again, there are ways to protect the family farm (as well as protecting family harmony), but they all start with a Will.  If you have a farm, you owe it to your family to make a Will so you can deal appropriately with that farm and prevent unpleasant surprises after your death.

 

While farms inheritances may be the biggest causes of family stress, the same scenarios arise with family businesses, with valuable collections and with vacation homes.  Which child will get the cabin inMinnesotaor the home on theLake of the Ozarks?  How will it be maintained after the parents’ deaths and how will the children share it? What happens if some of the children want to sell it or if some live inIowaand want to use it frequently while others live on the coasts and don’t really care about it?

 

There are no right answers for these questions because each family is different.  However, not answering the questions is the wrong answer.  Ask any lawyer who works in the probate area, and he or she can tell you horror stories about families fighting over farms or similar assets.  You owe it to your children to set them up to succeed, rather than leaving them to flounder and fail.