Farming and ranching have been a way of life for Colorado families. These holdings often stay in families for generations, passing down not only a valuable asset, but also a sustainable livelihood for years to come.
Rural life of a farm or ranch, although incredibly rewarding, is hard work that may seem to take every minute of the day. This leaves little free time to envision the future and plan for it across generations.
How has farm and ranch estate planning changed in recent years?
Many challenges face farm and ranch families across the country. From low commodity prices to recent trade wars, baby boomers facing retirement have challenges that previous generations did not. Almost one-third of American farmers are approaching or have already exceed the average retirement age of 65. With mounting pressure and costs, many are opting to sell instead of passing it down.
In the state of Colorado alone, over the past seven years, more than 7% of the farms in the state have been lost. If this practice continues, the loss of farmland may be enough to cause significant problems with the farming industry.
What can be done to help make transitions easier?
Farms and ranches tend to be asset rich, but cash poor. Capital investments in land and equipment do not always pay off in a given year due to poor weather, drought or a fickle commodities market. While insurance can provide a cushion, it isn’t a long-term solution. Often children head to cities for more specialized careers.
With the value of land in Colorado seemingly increasing each year, it can make selling much more tempting than trying to reach financial stability.
What factors need to be in place for successful estate planning?
Farm and ranch families often have assets that can trigger federal estate taxes. This is where planning becomes crucial. Trusts, limited liability partnerships, or limited liability companies are tools to ensure that it is not the tax burden that forces the next generation to sell.
Land and equipment may also carry significant loans. Life insurance policies can play a role in paying off some of debts. They can also help one child pay off siblings who will not take over the farm or ranch operation.
Scheduling a family meeting to go over a plan can also be helpful. Once agreed upon it can mitigate the risk of costly legal battles. Navigating estate planning for ranch and farm families can be a complicated process. An estate lawyer can help make this transition easier for everyone.