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Family Owned Farm Estate And Business Succession Planning

Estate Issues Faced By Family-Owned Farms

Two Important Legal Issues That Demand Diligent, Detailed Legal Planning
One of the major drivers of the California economy is agribusiness. In the mix of agribusiness found around California and even here in Placer County, are many family-owned and operated farms. These family-run farms already face many challenges to sustain their operations. Water issues, regulations, and sensitive agricultural markets demand extreme diligence when it comes to the survival of the family farm. One legal area that family farms need to continually stay on top of are Estate and business planning strategies.

Family farms often face special challenges when it comes to both Estate and business succession planning. Unlike many family-owned businesses, farm Estate and business succession planning must consider generations of tradition and emotions. Given that farms are usually complex business entities, Estate planning and business succession strategies must be considered to minimize unnecessary fees, taxes or delays that could negatively impact the heirs as well as agribusinesses viability.

A hundred years ago, life was much simpler for family-owned farms. “Family-owned” farms were generally run by generations of the same family who lived and breathed life into the farm. These family-owned farms were also important providers of jobs, food and taxes to their communities. Families grew up on the farm and generations of family elders educated and then passed on the responsibility of managing the farm business. Children often passed on school to learn “farming” and even if they attended school, the farm was always a priority during critical operations like planting and harvesting.

It is no longer the case that children of family-owned and run farms automatically consider farming as a career. Although many children of farms go off to college to become better educated on agribusiness, many choose other career paths unrelated to farming. This creates a typical issue that could cause what seemed to be a well-structured Estate and Succession plan to end up in Probate Court.

As with any other Estate issue, just because an heir was not involved with a family-owned business, does not mean they don’t have an expectation to get their “equal and fair” share. Some of these expectations could be based on purely emotional issues. Children who may have been out of touch with a family often surface with claims that challenge a Will or Trust that excluded them from a share of their parent’s property. Family-run farms are no different and often face similar challenges that force final distribution of the property and business to be decided in Probate Court.

Beyond the extra emotional issues that could negatively impact Estate and business succession planning of the family farm are the complexities of agribusiness. The highly technical and specialized nature of some farming operations demand that both Estate and business succession planning be as close to “bullet-proof” legally as possible. A failure in one strategy could put both the Estate and business under the management of an Administrator who has to explain every financial decision to the Probate Court while the Estate is being litigated.

Delays can negatively impact any business, but farming often deals with markets that are hyper-sensitive to timing. Every step of a farm operation is sensitive to timing and in some cases, there is no “we can do this later”, especially when you factor in the perishable nature of produce and the finicky nature of agricultural markets.

The bottom line is that Estate and business planning for family farms demand regular review. All potential heirs must be considered so as to reduce any challenges to both the Estate’s distribution and how or if the business of that farm will continue. Even if you, as the owner of a family-owned farm, has what you think is a fair Will or Trust set up, we suggest at the minimum, an annual review of the legal documents related to both the Estate and business succession planning.

If you are a family-owned farming business or supporting vendor, you have a new resource in Placer County to assist you with Estate Planning, Business Succession Planning and Business Law. The Sterling Law Group, APC now has a convenient office in Roseville that serves all of Sacramento Valley and Sierra Foothills. We are focused on making sure your operations are prepared for your vision to be carried out regardless if you are there to manage it.

We advise that any legal document or environment can be challenged. The best legal documents in the world have been upset by unintended challenges. On the other hand, poorly crafted strategies related to the distribution of an Estate of the succssion of a business almost always end up in Probate Court.

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