We have a unique problem, or maybe it's not that unique. We have a farming son who is in his late thirties, never married and looks like he may never marry. If he does, we know he'll find someone with children already–as there isn't a large pool of eligible ladies in our rural area to choose from who don't already have children. Besides, he's expressed he isn't interested in having children of his own at his age. We have two other daughters–one who is also farming and one who is not. The size of our estate is in excess of six million dollars. We know our farming son has earned the right to take on this family farm someday by staying with us, but we worry if we die and leave most of it to him, he won't have grandchildren to pass this on to–if he ever marries at all! We don't feel this is right he receive so much, our daughters so little when we know he'll never pass this on to a farming heir. One of our daughters has farming children.
– Not Waiting on Grandchildren
Dear Not Waiting:
You are certainly not alone here in having an unmarried farming son. When I speak at universities and colleges to ag education classes I tell them they have two priorities: Get a good education and find a good mate for life.
Let's face it–if Jr. comes home to a rural population that has ten men for every eligible woman–where most of the girls raised in the area have married out of the area–there's just not a whole lot of options for these boys once they leave college.
As the face of farming and the dynamics continue to change with this, as well as other problems, become more frequent, solutions have to reflect this change.
For some people using an LLC might be the answer. An LLC or Limited Liability Company is a business entity created to own property jointly. Normally, in farming, if you were alone, you would move your day to day farming operation into the LLC and the land would be owned outside the LLC to protect it. LLC's are designed to limit any liability exposure to the assets held within the LLC. Hence, you might put things like machinery, farm buildings, etc. (the places where accidents happen) into the LLC and then keep the land on the outside so it is protected from exposure.
An LLC functions much like a corporation. It receives income, pays expenses and then pays out any remainder income to the shareholders based on their percentage of ownership.
However, these is nothing to say you can't use an LLC as a land ownership entity and here are a few reasons why you might want to consider it.
Because your son needs so much of the land in order to succeed at farming, you might state in your will that the LLC Real Estate–established at the time of your death as a condition of your wills–will rent the land at a lesser value than market value to your son. Or you might state that your farming son receives his one-third of the rent paid back to him. You might state that he gets both so he's assured of being able to cash flow the operation.
Putting in crop shares can be dangerous because a few bad years in a row and the other owners are going to want to sell their shares in the LLC because it's not producing income and they want to cash in their shares.
Speaking of 'cashing in shares' we have to be aware that some of the shareholders– the other two daughters–may want to cash in their shares someday. To alleviate this you need to issue enough shares– say a million shares– which would equal six dollars per share, in your case. Now, you put a restriction into the LLC as to how much any owner can be sold per year, or per ten years, etc. This keeps Jr. from having to buy a third of the farm in one year.
If someone needs some quick cash, they don't need to cash in their entire farm interest–they can just sell enough shares to your farming son to carry them over.
Now, when everyone reaches retirement age–including your unmarried son–everyone has an equal value to add to their retirement plan–less any exchanges that have occurred over time–and no one can complain they got less than the other.
Michael Baron is the owner of Great Plains Diversified Services, Inc. and is a regular contributor to the "Farm And Livestock Directory". Involved in farm estate planning for more than thirty years, Michael Baron is well-versed in farm income taxation, estate taxation, retirement planning, transition planning, oil and gas estate issues, and all other issues facing the family farm, including family dynamics. Presented in a comprehensive, down-to-earth 'question and answer" format, the topics addressed in this column talk about the many aspects of estate planning – and how to 'Keep the Family Farm in the Family'. Contact Michael Baron at [email protected].