You are here

Equal vs. Fair Treatment of Non-Farm Heirs

Can Their Problem Be Solved?

The Problem:

My nonfarming heir doesn’t understand why the family farm is being left to her siblings who farm.

Submitted by Confused Mother:

How do I get my nonfarm heir to understand the fair-but-not-equal estate plan? Right now, this adult daughter is not speaking to me or her siblings, the two farming heirs.

It is my estate plan to keep the farm going and to provide the largest farm possible for my two farm families. They will receive all farm assets. There are no other assets to split upon my death as everything has been put back into the farm to help it expand. All my children have equally inherited a large cash distribution from their father’s recent estate settlement. That should be enough for the nonfarming heir. 

I am currently gifting like crazy to the farm families to reduce their estate tax liability and have been doing this for years. (The nonfarm heir would even be angrier if she found out.) 

I have explained several times to this daughter that my goal is to keep the farm in the family for the farm heirs. My two farming children are happy with the estate plan. We have read many articles about the greed of nonfarm heirs and have given some of them to her to read. Her sister has told her that she should be grateful that she got anything.

We have no idea why she is upset. I do not know what to do. Please help.

The Solution:

Please stop calling your daughter a nonfarm heir. Based on your current estate distribution, she is a nonfarm nothing.

Here are some thoughts you might consider:

  • Before you gift any more, meet with a financial planner.
    Make sure you have the living and lifelong care you need, independent from the asset control of others. 
  • Have the family members in the business received realistic compensation for their work?
    Does your annual gifting equal or exceed compensation for earned sweat equity?
  • Why create the largest farm possible?
    If you and the farming children have expanded the operation to the point where sharing an equitable (not equal) value with the nonfarming daughter is not feasible, then perhaps you have expanded too much.
  • When your children received the large cash distribution from their father’s estate, did the farming children purchase assets from you to demonstrate personal skin in the game?
    Did they put it back into the farm to increase their ownership or to reduce debt?  
  • Because you state that you have only farm assets, perhaps a portion of your land asset could be inheritance for your nonfarming daughter.
    Use adviser-guided terms for a tie-back of a rental contract or first right of refusal if she sells. She would receive value, and the asset use or asset could remain for the business. 

I am concerned that you and the farming children consider their nonfarming sister greedy. Yes, fair is not equal, but I believe equitable should be considered. 

Also, your secret “gifting like crazy” to the farming siblings most likely will sever any chance of sibling relationships. This gifting has been your decision and your action. Inform your daughter, and then deal with the consequences you created.  

You already know why the nonfarm daughter is angry. Her farming siblings will inherit or be gifted the net worth of the business. She will receive nothing. 

You also know why your farming children are happy. They can do whatever they want with those assets, including sell for profit beyond inheritance value. 

I encourage you to seek the help of a wise attorney and CPA to explore better options.

Your Generating Success Adviser Team

Jolene Brown is a professional speaker, author, farmer, and family business consultant. She shares her passion, experience, and fun-filled spirit with farmers and ranchers across North America. Her tested business tools provide leadership and management solutions for the people who feed, clothe, and fuel the world. jolenebrown.com

Dr. Donald J. Jonovic is founder of Family Business Management Services in Cleveland, Ohio. He focuses on management, growth, and ownership transition issues. familybusinessmgt.com

Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. During the past 15 years, he has worked exclusively with farm families across the Midwest to develop farm transition strategies. farmestate.com

 

Read more about

Talk in Farm Business

Most Recent Poll

Will you have enough on-farm storage for harvest?