Dear Michael: We would like to protect our family farm from all things. We are considering setting up a life estate to our three children. One of them is farming with us and we thought we would give him a little more of the land as he’s worked with us for so long. We want the girls to rent to him. This is all the land we farm along with our rented land and we’d like to be sure it’s safe from long-term care costs. Are we on the right track?

– Right Track.

Dear Right Track: You might be on the right track right now because all you can see are those tracks moving in a straight line going off into the distance. As long as this is your perspective and you only allow yourself this perspective, then it’s likely your family farm will fail. Those tracks seldom stay straight forever.

The problem with a “life estate” is it typically doesn’t have any set of rules. Up until your deaths, everything stays the same with you still being the boss of the operation.

However, upon your deaths, the land then gets passed on to the kids – although they probably won’t be “kids” any more.

These children will now likely have children of their own. They will have spouses. Spouses are interesting because under most state laws, if they are married longer than 10 years, this gift might be construed as “community property” and then it’s a gift not only to your child, but to their spouse, as well.

In addition, and this is in virtually every state, if your child should die, God forbid, their next immediate heir is their spouse and/or their children. This allows the survivor to do what they want with the property.

I noticed you didn’t mention anything about your farming son having something written into the deed that he is allowed to rent the property or to purchase the property should they decide to sell the property.

Not only is it important to have this written right into the deed, but it also has to spell out what the rents are going to be. If they do have to rent it to him, you have to protect the lessor’s interest as well so that your farming son doesn’t let the rented land go one year or doesn’t pay timely and then walks back in two years later waving his “right to rent” in the deed. If he is going to rent the property, he must pay a certain amount at a certain time of year, and he must “continuously” rent in order to qualify. If he breaks any of these convenants, then the children are free to rent to whomever they wish.

Last, but not least, if they or their heirs decide they want to sell the property, then it must be written into the deed whether or not the farming son has the right to purchase the land before it goes up for auction.

Again, you’ll need to put into the deed all the terms of this agreement – notification by the seller, method of valuation, time span before the son has to put up earnest money or the full payment for the land. By the way, it’s a bad idea to have a contract for deed as a method of payment because there’s nothing worse than owing money to your siblings.

You may have selected a “right track” on how you want to pass your property on, but you need to look over the horizon and see how many people will have a say in the property in the future.

You might not like seeing who is all on the list, as much as you trust them today to do the right thing.

Write Michael Baron at 1424 W. Century Ave., Ste. 208, Bismarck, ND 58501; phone him at 800-373-4078; or email him at KeeptheFamilyFarm@gmail.com.

Sign up for our Weekly newsletter

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota. Email him at KeeptheFamilyFarm@gmail.com.

Columnist

Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota.