How Do You Treat Your Off-Farm Children Fairly?

One of the most challenging issues in Succession Planning and Estate Planning is how to fairly deal with the off-farm children when the value of the off-farm assets are a fraction of the value of the farm assets.

That difference has been exacerbated by the dramatic increases in the value of farming land over the last few years. Fairness in this context may not necessarily mean equality between farm and off-farm children. The farm children may have dedicated decades of their life to the farm whilst the off-farm children may have pursued their own careers and businesses. The most obvious act would be to leave the off-farm assets to the off-farm children.

However, in most cases that is not just because the farming assets are usually many times the value of the off-farm assets. In these circumstances, conditional gifts can be useful. A conditional gift is a gift of property to one person on the condition that it legally binds them to do something of financial benefit for another person.

Conditional gifts can take many forms, depending on the particular circumstances. For example, certain farming assets may be gifted to farming children on the condition that they pay a substantial sum to non-farming children.

This payment could be by lump sum or by instalments over a period of years. In the latter case, there could be a provision for contingencies like droughts. It may be appropriate in some situations to leave a part of the farming property to off-farm children on the condition that the farming children have a right to purchase it at market value or at a percentage of market value, depending on the circumstances.

Further, a gift of farming land to off-farm children could be conditional upon farming children being given the right to lease the property at market value or at a percentage of market value over a period of time. Where farming land is owned by a trust, measures can usually be put in place to procure that after the death of the parents, the off-farm children receive some financial benefit from the trust, whilst at the same time leaving control of the trust to the farming children.

The above types of arrangements provide a means of increasing financial benefits to the non-farming children and, at the same time, give the farming children the opportunity to use the farm to generate income to pay the non-farming children. 

We can assist if you require advice in respect of Succession or Estate Planning and any Agribusiness matter.