A will is a legal document directing how your assets will be distributed after death. To ensure farm transfer goals are met, a will can generally be used in combination with, at least: one or more types of trusts, long-term health care planning, life insurance, and tax planning for both estate taxes and gift taxes.1
Using a will as part of the farm transfer process will require a public “probate” process that involves a court, can take at least 12-18 months, and generally requires the help and expense of a probate attorney.
Creating an effective will and farm transfer plan that actually does what you want it to do will almost always require the help of an estate planning attorney. Estate planning attorneys can draft wills, set up trusts, help keep farmland in the family, help find tax advantages, and help determine the best combination of legal tools to meet strategic farm transfer goals. If possible, it’s best to find an estate planning attorney who has experience working with farmers and understands the special rules and benefits that apply to farms.
The Wahl family has been raising sheep and cattle in Oregon since 1874. Their 2,000-acre ranching operation includes timber-producing forests, ponds, riparian buffer vegetation, and wetland habitats.
A will is a plan that someone makes giving instructions about how they want their property (assets) to be distributed when they die. Wills can be highly individualized according to each farmer’s situation, and can include special provisions to help children continue the family farm business. A will can also help farmers thoughtfully distribute assets among multiple children—including some who don’t want to farm (non-farming heirs), and some who do want to farm (farming heirs). If a farmer is married, the farmer and the farmer’s spouse should each have a separate will.
Wills often include:
If a farmer dies without a will, state law determines how the farm property will be distributed. A person who dies without a will dies “intestate.” Dying without a will is risky, because state law will not account for farm transfer goals. For example, farmland may have to be put up for sale instead of being passed to a farmer’s child who wishes to maintain a family farm legacy.
What is Estate Planning?
Estate planning (also referred to in the farm transfer context as “succession planning”) is the process of strategically controlling your assets during your life and strategically distributing your assets after death. Important estate planning goals are: 1) Ensuring you have the necessary income and resources upon which to live; 2) Ensuring that upon your death, your assets go to the people and/or organizations you intend; and 3) Minimizing estate taxes, fees, delay, disputes, confusion, and associated court costs.
Estate planning involves setting goals and using legal tools and strategic planning to meet those goals. A will is a key part of an estate plan. Your will (and/or trust) should be tailored to meet your farm transfer goals. Property, farm business ownership, and the transition or distribution of such assets should be examined and tailored to your farm transfer goals. Estate liquidity issues should be reviewed and can sometimes be addressed with the help of life insurance. Family income requirements should be matched with projected income. Other issues to be considered include treatment of heirs (farming and non-farming), incapacity planning through the use of powers-of-attorney and health care directives, disability planning, tax planning, personal representative or trustee selection, estate administration cost savings, long-term health care issues, and more, depending on your personal situation.
Estate planning can be a simple or complex process depending upon the size and composition of your estate, your family situation, and your business situation. No two families have precisely the same set of circumstances. Farm families, however, tend to have more complex estates and goals. Effective estate planning for farmers requires the help of an estate planning attorney, preferably one that has experience working with farmers. Without legal help, specific farm transfer goals are unlikely to be met. Investing in strategic estate planning up front is often far less costly and disruptive to a farm family than handling these issues after a disability or death.
Most farmers should seek the assistance of an estate planning attorney in order to create a will that follows all state requirements, to meet farm transfer goals, and to design a plan to minimize estate taxes. Some people with small and simple estates can get by with a simple will. Most often, farmers have more complex estates because they own complicated assets, such as farmland, a farm business, farm buildings, livestock, equipment, and may want to keep these assets undivided and under family ownership. Complex estates require more complex wills, and often benefit from the use of one or more types of trust in conjunction with a will. Sometimes a trust might be created by and incorporated into the will itself.
Wills should be kept in a safe place, like a fireproof safe or a safety deposit box, and your personal representative and heirs should know where the will is kept. Additionally, if you would like to make changes to a will, it is important to make those changes formally and in writing—usually with the help of an attorney. Without taking formal steps, any changes you may want to make might not actually take effect at death.
Making a will legally effective after death most often requires a court-supervised probate process, described below. While probating a will has the benefit of a court’s approval and enforcement, many farmers try to avoid it (if possible) because it can be an expensive, lengthy, and public process. Avoiding probate generally requires using a specific type of trust to transfer assets. Trust creation and administration also requires the assistance of an experienced estate planning attorney.
A will is equivalent to a letter of instruction to the court system that automatically starts a probate process when the testator (the will creator) dies. Probate is the process in which a court recognizes that a will is valid, decides who will be the personal representative for the testator’s estate, establishes clear title (ownership) of any assets, and approves the plan for the distribution of assets.
Probate is a public process, and can be time consuming (12-18 months, or more) and costly (2% to 3% of the value of the estate is common). The purpose of probate is for the court to make sure the testator’s (will creator’s) assets are managed and distributed effectively and according to the testator’s wishes as set forth in the will.3 It also ensures that the testator’s tax obligations and debts are paid off before distributing the assets according to the will’s instructions. Assets that are subject to the probate process are any assets that are titled solely in an individual’s name that are not otherwise able to be transferred at death through some other mechanism, such as a beneficiary designation or joint ownership of the asset. While certain assets are subject to the probate process, some assets are not subject to the probate process (these are called “non-probate assets”).4 Non-probate assets are assets that can transfer to another individual at a person’s death through a mechanism that avoids court involvement, such as beneficiary designations or joint ownership of the asset. The probate process can be avoided in some instances, at least in part, when farmers strategically use a certain type of trust (like a Revocable Living Trust) to transfer assets at death.5
Although the process of probate differs depending on individualized circumstances, there are generally eight steps (described below).6 Prior to beginning the probate process, the decedent’s (will creator’s) personal representative or the decedent’s heirs will need to locate the will itself, consult with a probate attorney, and secure copies of the death certificate.7
If a person dies without a will, or if a will does not meet state requirements for being valid, then assets pass through intestate succession, meaning that state laws and state courts determine who gets what property.9 This is the case in all 50 states.10
Generally, in intestate succession, the surviving spouse receives all of the decedent’s property (although this may vary if the decedent had any children from a relationship prior to the relationship with the surviving spouse). If there is no surviving spouse, but the decedent has children who are still living, the property is divided equally among those children. State laws also cover situations where the deceased person has no spouse or living children.
The purpose of intestate succession statutes is to distribute a person’s wealth in a manner that closely represents how the average person would have designed his or her estate plan. However, farmers are not your average person. As a result, state rules can differ dramatically from what a farmer really would have wanted. Even where it is known what a farmer might have intended under a farm transfer plan, no exceptions are made where no valid will exists—state law must be followed. Nor are there any exceptions made based on need or special circumstances.11 That means it is important for a farmer to have a will drafted by an attorney to ensure it is valid and will meet farm transfer goals.
Farmers are not your average person. That means it is important for a farmer to have a will drafted by an attorney.
Farmers can use a will to make sure the farmhouse, farm business, farmland, farm equipment, and any other farm assets go to intended people or organizations. People inheriting the land can be within or outside the family.
It’s not an attorney’s job to make decisions for farmers or to set farm transfer goals. Instead, attorneys can provide information about pros and cons of different options, advice about what is common versus unusual, fair versus unfair, etc. Attorneys can help farmers understand the universe of possible farm transfer goals and help narrow down individual options so that farmers can make final decisions.
1. Gary A. Hachfeld, et. al., Establishing A Will, University of Minnesota Extension Estate Planning Series (2016), https://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series3-establishing-a-will.pdf.
2. Each state has its own rules governing how to create a valid will. Generally, a will must be in writing and must be signed. The signing of the will must be observed by a usually at least two witnesses. See, e.g., Uniform Probate Code s. 2-502 http://www.uniformlaws.org/shared/docs/probate%20code/upc%202010.pdf. For example, in Ohio, a will is valid if it is made by someone who is at least 18 years old, it is in writing (typed or handwritten), it is signed by the person creating it (or on behalf of him/her), and signed by two witnesses within the will-creator’s conscious presence (meaning within any range of the will-creator’s senses). See Ohio Rev. Code Ann. § 2107.03. Depending on the state, a court may accept a will that does not follow all of the requirements. Furthermore, about half of the states treat as a valid will documents that do not follow the state’s requirements but are in the will-creator’s handwriting with the will-creator’s signature (known as a “holographic will”). Some states such as Georgia, Indiana, Kansas, Massachusetts, Mississippi, Missouri, New Hampshire, and more even allow for oral wills in limited circumstances (known as a “nuncupative will”).
3. Gary A. Hachfeld, et. al., Establishing A Will, University of Minnesota Extension Estate Planning Series (2016), https://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series3-establishing-a-will.pdf; see also Cort A. Neimark, Helping Your Clients Understand The Probate Process and Meeting Your Client’s Expectations, The Role of Probate Court in Administering Estates, 2012 WL 2165919 at *1.
4. Gary A. Hachfeld, et. al., Estate Planning Principles, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series1-estate-planning-principles.pdf.
5. Gary A. Hachfeld, et. al., Revocable Living Trusts, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series5-revocable-living-trusts.pdf.
6. For a Florida example, see “Step By Step Guide To The Probate Process,” The Law Offices of Snyder & Snyder, P.A., http://www.snyderlawpa.com/global_pictures/stepbystepguidetoprobateprocess.pdf.
7. Gary A. Hachfeld, et. al., Steps in Estate Settlement, University of Minnesota Extension Estate Planning Series (2016), http://www.extension.umn.edu/agriculture/business/farm-transfer-estate-planning/docs/estate-planning-series10-steps-in-estate-settlement.pdf.
8. See, e.g., Notice to Spouse and Children, State of Minnesota, Ramsey County, http://www.mncourts.gov/Documents/2/Public/Probate/P-016_NOTICE_TO_SPOUSE_AND_CHILDREN_AND_AFFIDAVIT.rtf
9. See Trav Baxter, Succession Planning for Family Farms, Ark. Law., Fall 2015, at 18, 20, https://issuu.com/arkansas_bar_association/docs/lawyer_fall_2015_issuu/20.
10. See, e.g., Understanding Intestacy: If You Die Without An Estate Plan, Findlaw, http://estate.findlaw.com/planning-an-estate/understanding-intestacy-if-you-die-without-an-estate-plan.html.
11. Understanding Intestacy: If You Die Without An Estate Plan, Findlaw, http://estate.findlaw.com/planning-an-estate/understanding-intestacy-if-you-die-without-an-estate-plan.html.
The Center for Agriculture and Food Systems is an initiative of Vermont Law School, and this toolkit provides general legal information for educational purposes only. It is not meant to substitute, and should not be relied upon, for legal advice. Each farmer’s circumstances are unique, state laws vary, and the information contained herein is specific to the time of publication. Accordingly, for legal advice, please consult an attorney licensed in your state.