Making A Fair Estate Plan

Diana and her husband have two children who will inherit their farm. Diana's daughter wants to farm with them. If their daughter is working in the business, how do they split it between their two kids fairly?

QUESTION: Diana in Texas and her husband are farmers and have two children who will inherit the farm. Diana’s daughter wants to come back and farm with them. Their son would, too, but he dislikes the nastiness that comes with farming. If their daughter is working in the business, how do they handle splitting it between their two kids fairly?

ANSWER: It sounds like you have a business as a farmer, and you want to transition that business to one child upon your death. The one who’s working in the business is the one who gets the business. If you want your son to own part of the business with his sister who works in the business, you could do that, I guess. But you’ve got to think that through.

It depends on how much money this thing’s making—the business, not the land. The land is an asset to the side. In other words, I have a business and I have a 64,000-square-foot office building. The business is one asset in my estate planning. The office building is another. You have a farm operation that makes a profit farming, but the land is a separate issue.

Farming is a business, hypothetically. It should be. You need to lay it out as a business and say, “We are small business owners. What happens to this small business if we live 30 more years? How are we going to transition this to our daughter and our son-in-law? If we die sometime in the meantime, how are we going ‘be fair’ to our son?” That’s probably going to be through some of the real estate. It’s not really fair for your daughter and son-in-law to build up the farming business and your son profit from that, who wasn’t there working. You’ve kind of got to work that through, and you need to sit down and do an estate plan. As long as you’re going to work in the business and still be farming, I would maintain control of the farming operation. You can share profits with them as an employee, and you can even transfer stock and ownership of the company over to them with you still having a controlling vote until you decide to retire or die. That’s how most small business family transition plans work. It’s a pretty standard thing, and you need to sit down with a good estate planning attorney and begin to unpack what happens to the business if you live, what happens to the business if you die, what happens to the land if you live, and what happens to the land if you die. When you lay all of that out, then it’s going to start to make sense to you and you can begin to play through with the children who’s going to get what and when and under what circumstances. It’ll start to make pretty good sense to you at that point.

Jump-Start Your Goals!

Jump-Start Your Goals!

Get our 8-Day JUMP START series and weekly newsletter that are packed with articles and tools to help you win with money.

Reach Your Money Goals

Reach Your Money Goals

Start with a budget. Join the millions already budgeting with EveryDollar!

Create My (FREE) Budget

Thank You!

Your 8-Day Jump Start is on its way to !