Family business owners, farmers, ranchers and landowners face unique challenges surrounding how to preserve the family business or farm—a symbol of their heritage. Sadly, over 70 percent of all family businesses don’t survive the transition to the next generation. Estate taxes play a significant role in that problem.
However, estate taxes aren’t the only costs chewing up assets passed from one generation to the next. Probate fees and other settlement expenses can significantly reduce an owner’s legacy. On top of that are the problems surrounding the fair distribution of those assets to heirs.
Land Rich, Cash Poor
The typical farm family is land rich, cash poor. With hundreds of thousands, if not millions, of dollars locked up in equipment, livestock, structures and land, the net worth may be impressive. But when you look at the cash flow, it’s another story entirely.
Estate taxes will be based on the current market value of all your assets. If your heirs can’t readily come up with the cash from other sources, they may have no recourse but to sell the farm just to pay estate taxes and other settlement costs.
Estate Planning Solutions
Your farm or business poses two estate planning challenges:
- How can you preserve it so that you can pass it on intact to the next generation
- How will you equitably distribute it among your heirs.
Achieving these two goals means planning in advance for such expenses as estate taxes, as well as implementing strategies that give you maximum control over how, when, and to whom ownership of your farm transfers. Contact our office for more information about your options.
Also be sure to read more about Business Planning and Asset Protection strategies here.
Frequently Asked Questions
Why do family businesses need a separate estate plan?
Family businesses and farm operations have unique estate planning challenges: illiquid assets, succession disputes, co-ownership among multiple heirs, and potential estate tax liability if the operation’s value exceeds the federal exemption. A general estate plan often does not address these issues adequately.
What is a business succession plan?
A business succession plan is a legal strategy for transferring ownership and control of a family business to the next generation or key employees. It typically includes buy-sell agreements, gifting strategies, trust structures, and buy-out provisions funded by life insurance.
Can my farm qualify for special estate tax treatment?
Yes. Under IRC Section 2032A, family farms and certain closely-held businesses may qualify for a Special Use Valuation that reduces the taxable value of the farm for federal estate tax purposes. This election can significantly reduce or eliminate estate tax on qualifying agricultural land.
How can I pass my business to children without triggering gift tax?
Strategies include annual gifting of business interests within the $19,000 annual exclusion, using valuation discounts for minority or lack-of-marketability interests, gifting through a family limited partnership or LLC, and using irrevocable trusts designed for business succession.
What happens to my business if I die without a succession plan?
Without a plan, your business interest becomes part of your probate estate. In Washington and Utah, probate can delay the transfer of assets for months. If multiple heirs inherit equal shares, disputes over management and control are common and can destroy the business value your family built.
Does Terry Law Firm handle both Washington and Utah family business estate planning?
Yes. Attorney Scott Terry is licensed in both Washington and Utah and serves family business owners from the Sumner, WA and St. George, UT offices. Washington’s community property rules and Utah’s common law property system affect how business interests are owned and transferred, and planning must account for both.
