Giving farming, non-farming children a piece of the pie

A key consideration for most parents when planning a farm estate is to be fair to all their children, whether or not they want to be involved in the farm.

Land is usually the most valuable part of the estate, and it can be tricky dividing it up among the children.

However, parents also want to create a plan that provides the children who do want to farm an opportunity to succeed.

Every family is different, and there is not just one solution to meet the family objectives.

A number of things must be considered if the family’s philosophy is to separate land ownership from the actual farming operation.

One area to consider is how to protect the farming child who makes a living from the farming operations from decisions that the non-farming child may make with respect to the land they own.

Here are some tools to consider to provide this security.

Right of first refusal

One option is to give the farming child a right of first refusal on the land.

This allows the farming child to match a price offered to any non-farming children for their inherited land.

It is important to remember that a right of first refusal will make it more difficult for children to sell land because buyers are sometimes less interested in negotiating to buy property if someone else can step in at the end and take the opportunity away from them.

The right of first refusal can be provided to the farming child, non-farming child and the parents.

Option to purchase

Another alternative is to give the farming child the option to buy the non-farming child’s inherited land at fair market value or less.

This agreement gives the farming child the right to buy land from the non-farming child for a set period of time. It gives the farming child a little more control because they have the ability to decide when to buy the land.

Long-term lease

This alternative gives the farming child long-term access to the land as well as time to build the financial resources to either buy other land or raise funds to buy the non-farming child’s land.

It provides the farming child peace of mind and can also offer “automatic” renewals.

This means the non-farming child has to honor the terms of the existing lease during the parents’ lifetime or on their death.

However, all bets are off after the lease and any renewals are over. The non-farming child then would have control to do what they wish with the land.

Other factors to consider

  • the price at which to sell (fair market value versus a discounted value)
  • the time frame
  • other restrictions on both farming and non-farming children

A combination of the alternatives can be used, depending on the situation.

Planning is imperative, so get proper advice from the appropriate professionals.

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