Many larger family farms may see relief from estate taxes as a result of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.  Although the Tax Relief Act has focused attention on the tax aspects of estate planning for family farms, many other business planning issues are important for family farms.  For example, preserving the family farm for future generations and protecting the family farm from the divorce of a farm child are critical issues for all farm families, even if estate taxes are not a concern. 

Unfortunately, many farmers do not like to engage in estate planning or business succession planning.  And this is true even though family farms face a few unique challenges that many other family businesses do not.  One of these unique challenges is the "love of the land" and the fact that many farm parents and farm children do not want to see the family farm be sold.  After all, both the parents and the children have spent many hours of hard work making the farm successful and it remains home, no matter how far away you have moved.  Another unique challenge that family farms face is that the agricultural land typically makes up most of the family's net worth.  And farm land is an illiquid asset that cannot be easily transferred to non-farm children if a goal of the parents is to treat all children (farm and non-farm) equally.  Fortunately there are estate planning and business planning techniques that can address many of these issues.

One way to pass the family farm to the next generation and protect against the divorce or premature death of a child is through the use of a family entity such as a limited liability company or a corporation.  While farmers often like to keep things simple, family entities are typically the best technique for estate planning and business succession planning.  They are also often used to protect certain assets in the event of divorce or to provide a buy-out strategy for the death of an owner.  In a family entity, operating agreements (or buy-sell agreements) can be drafted so that family assets are protected from the risk of divorce and other unexpected events, including premature death.  For example, if a farm child owns an interest in a family entity and the child dies before the parents, life insurance can be utilized to provide funds to buy-out the deceased child's interest in the family entity or to provide for a buy-out over a long term.  This can ensure that the farm's cash flow is not adversely affected by these unexpected events.  

Estate planning and business succession planning for the family farm is very much a team approach and should involve an experienced attorney, your accountant, your lender and even your farm and non-farm children.  There is no one-size-fits-all plan.  You owe it to yourself and your children to put a practical, workable plan in place before an unforeseen death or divorce cripples your family farm.