Passing On Your Farming Legacy
Dr. David Fernandez, Extension Livestock Specialist
Fall has arrived, and with it a slower pace on the farm. Calves weaned and sold, breeding season is long since over and hay feeding hasn’t started in earnest. While there’s always something to do on the farm no matter what time of year it is, as the leaves start to fall and the land starts going dormant for winter, I start thinking about the future and the next generation that will arise with the coming spring. Few of us like to think about it, but one day we won’t be here anymore, and we want to leave a legacy for our families to enjoy for generations to come. With the average age of a farmer in Arkansas approaching 55, now would be a good time to make sure the legacy you leave is the one you want to leave.
The Cost of Doing Nothing
Many farmers and ranchers in Arkansas simply decide to do nothing and let the kids figure out what they want to do after they are gone. This is common among minority farmers and ranchers. But if you don’t have a plan, restassured the State of Arkansas does. So what happens to your farm if you don’t create an estate plan? First of all, your farm is a business, and if, like 86% of all Arkansas farmers, you are a sole proprietor (not a LLC, S or C corporation), the “company” dies with you. No transactions can be completed until after your estate has been settled and your creditors’ claims satisfied. Your family will only receive up to $1,000 from your estate to pay their bills or buy food until after the court decides how your estate should be divided. Partnerships face a similar problem.
If the farm has enough money to satisfy the outstanding bills, the farm real estate passes on to your heirs. But who are your heirs? According to Arkansas State Code (A.C.A. § 28-9214), your children, and not your surviving spouse, are your heirs first (although your spouse does have certain rights to your property, called dower rights or curtesy rights). If you have no children and have been married for three or more years, your spouse is your heir. If you have been married less than three years, your spouse gets half and your parents get half. Of course, the situation becomes more complicated if your parents are no longer living. Their half goes to your siblings. (For complete details, see A.C.A. § 28-9-214, which is available at http://www.lexisnexis.com/hottopics/arcode /Default.asp). As I said, it gets complicated. The end result is heir property.
Heir property is property that is controlled by multiple heirs with various numbers of shares of interest in the farm you leave behind. While many families are able to share the management of the farm agreeably, others are less able to do so. The more heirs there are, the more difficult this is to do. The upshot is that the property may not be farmed by any of the family members and may not be rented to another farmer if ALL the heirs cannot agree upon terms. Many farms in Arkansas are no longer farmed, and many younger heirs are not able to farm on the family farm because the heirs cannot agree upon who should be allowed to farm the property, what the financial return to the heirs should be or how the land should be farmed. Eventually, one or more of your heirs may file a partition suit, demanding the farm be divided or sold and the proceeds divided based upon the number of shares of the property to which each heir is entitled. In short, your farm gets divided and sold, bringing your family’s farming legacy to an end (see A.C.A. § 28-53-115 (2012), which is available at http://www.lexisnexis.com/hottopics/arcode /Default.asp).
Wills and Estate Planning
Creating a will or planning how you want your estate divided is often a source of considerable stress. Heirs will be understandably curious. You may not want to tell them what is in your will to avoid a family quarrel. Professional estate planners and attorneys can help you create a document that is fair and equitable to all of your heirs. You may even invite them to be part of the process. The estate planner can help keep tempers cool and provide alternatives. For example, there are insurance policies available that can allow you to provide something to the heirs who do not wish to farm, while giving the farm to those who are interested in managing it along with a little money to help get them started. Perhaps you might choose to change your business structure to a corporation. Taking the time to plan for the future now, while things are a little slower on the farm, will ensure your farming heritage can be a legacy for many generations to come. And that makes a cup of hot coffee on a cool fall morning on the farm a little more enjoyable.
This material should not be considered an authoritative basis for interpreting the laws of the state of Arkansas on matters of property ownership or in estate planning. It is intended to help a person better understand property ownership and be prepared to use the professional services of an attorney.