Equal and Fair are Two Different Things

Most of the kids moved away from the farm, while one or two stayed around. Now, as the parents are aging, the farming child (let’s say “son” to illustrate) depends totally on the farm for his living. As the parents grapple with how to plan out the transfer of their estate, they are troubled by the question, “What is fair?”  This coin, like most, has two sides.

The farming son has contributed his blood, sweat, and tears to help make the farm successful. He stayed around, never fully compensated in dollars for all of the time and effort he put into the operation. When commodity prices were low, so was his pay.  When prices went up…well, Dad said they should save the cushion for a rainy day!

The other kids usually chose their own paths. They didn’t particularly care for the farming life; they wanted something more exciting; or, if growing up they learned to see this as the “hardscrabble” way of life, they wanted something they perceived as “better.” Their parents helped them pay for college, blessed their marriages, and even today are willing to appreciate their off-farm success. The farming son, however, probably ought to receive more than an equal share of the farm.

 

Consider, however, the other side of the coin. The non-farming heirs might say, “My brother never took any real risk. He was protected and supported. He had opportunity and a complete living handed to him on a silver platter.”

Ouch! In some cases this might be true. A few years ago I was told of a father who told one of his sons, “Act stupid and you won’t have to work as hard.” If that is the case, maybe the other kids are right!  Maybe everything is being spoon-fed to one, and he is not doing anything truly to earn it.

Now the farm itself has become a gold mine. Land prices—and cash rent rates—have gone through the roof. What used to be a $900,000 estate has ballooned to $5 million or more…and the kids who left the farm know it. While making a living from the farm used to be more about the work you actually did, now mere ownership of land seems like a gravy-train.

I’m just an attorney who grew up on a farm. I’m no psychologist or private investigator. Sometimes parents overly shelter a “chosen-one” and treat the other kids unfairly. But after hearing many of these stories from multiple generations, I believe that more often than not the first perspective is closer to reality. The silver platter version usually reflects wishful thinking, perhaps even sour grapes.

Fortunately for me, you have to make the decision, not I. But if your reality matches the first description, it is not fair to leave the farming son merely an equal fraction of your estate.

Don’t misunderstand. I don’t mean that if 90% of your estate is the farm you must leave it to the farming son while the other four kids split 10%. All of the heirs should probably be blessed by the appreciation of your estate. The tough question you keep putting off, though, is “How?”

I find that it helps to think in terms of “owner” and “operator” (or simply landlord and tenant). If you own the land and your son makes his living farming it, your compensation comes to you as the owner. Your income potential as owner could be shared among the children while still protecting the son who is the operator.

Consider giving the farming son ownership of more than an equal share of the land, plus a right to rent the rest of the land. You are fully able to set time limits and to determine rental rates. If one child wants to sell out his ownership share, you can prohibit him, or you can insist that he sell at a specified discount to the other kids.

“Can I really put those limits on my heirs?” Yes, with a carefully drafted trust. A trust is a flexible tool for setting terms and stipulations of just this type. But be careful; make sure you work with competent counsel. I recently read a deceased person’s poorly drafted trust that was intended to keep the farm in the hands of the farming son. Unfortunately, the actual terms of the trust required the farming son to “conclude actively farming” in order to get the farm. That was not intended!

However you plan to divide your estate, treat your family like adults and tell them. Now. Don’t put it off. Invite their comment. If you don’t have the nerve to tell them, then either you raised unreasonable children, or your plan for dividing the estate is not reasonable! Keeping your decisions secret until they “read the will” only assures that your plan will cause strife for decades after you’re gone.

 

– – – – – – – – – – – – –

©2014, Curt W. Ferguson, all rights reserved.