In the Field: Recent Report Highlights Importance of Estate Planning for Farmers and Ranchers
Estate planning is critical for farmers and ranchers due to the unique nature of their businesses and the fact that a large portion of the business’s value (and in many cases, the family’s assets) is agricultural land. As a recent report notes, “a farm business can suffer if estate transfer is not planned to minimize taxes, costs of post-death estate administration…, and family tension.” The comprehensive report, produced by the Oregon State University’s Center for Small Farms and Community Food Systems, Portland State University Institute for Portland Metropolitan Studies, Portland State University’s Planning Oregon and Rogue Farm Corps, provides an in-depth assessment of farmland succession, transfer and land use in Oregon and reveals some concerning statistics where the transition of agricultural land is concerned.
The consequences for failing to plan for the transition of an agricultural business are significant and only 20% of family farms nationally survive beyond one generation. The lack of an estate and transition plan at the death of a farmer can cause major disruption of the business and force surviving family members to sell one of the family’s most important assets—their agricultural land—to pay debts, taxes and other expenses. As noted by the report, “in the absence of a succession plan, opportunistic market forces and state laws governing estate transfer may drive outcomes.”
A huge amount of agricultural land in Oregon may change hands within the next 20 years, which makes planning for this transition critical. The study indicates that 64% of Oregon’s agricultural land—more than 10 million acres—is held by farm operators over age 55. Among other benefits, where farmers and ranchers have planned for the transition, the farms are “likely to have more of their economic value preserved for the successor.”
The data further suggests that many farmers and ranchers are unprepared for this transition, pointing out the fact that 84% of farms are held as sole proprietorships. This is notable because sole proprietorships are a business form that requires no formal organization and offers no liability protection. Professional advisors rarely recommend this form of organization so this is likely an indicator that no estate planning attorney has reviewed the family business structure or provided advice regarding a future transition.
Planning for farmers and ranchers can be complicated and requires understanding the nature of the business, the mix of family and business assets, the family dynamics and the goals of the business owner. Due to the complexity and the severe consequences that can result from failing to plan, the sooner you and your family begin planning for a transition, the better. Advisors can help you and your family navigate the complexities and set your business up for a successful transition.
The full report is available here.