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Old MacDonald Had a Farm; His Neighbors Had a Probate Fight

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Most of us learned about Old MacDonald's farm in a nursery rhyme long ago. We know that Old MacDonald had a number of noisy animals on his farm - including a pig ("oink, oink"), a cow ("moo-moo"), sheep ("bah, bah"), a horse ("neigh, neigh") and a dog ("woof, woof"). While Old MacDonald seemed to have his farm pretty well put together, we thought that we might talk about what happened to some of Old MacDonald's neighbors and their farms. It turns out that some of his neighbors never used an estate planning attorney, and now they must seek out an estate litigation attorney.

While the nursery rhyme doesn't identify where Old MacDonald's farm is located - we are going to assume that his farm is somewhere in California's Central Valley - an area where we practice a good deal of law in trust litigation and probate litigation.

California's Central Valley is part of the Greater Sacramento Combined Statistical Area - a combined statistical area covering seven counties in Northern California. These are Sacramento, Yolo, El Dorado, Placer, Sutter and Yuba (even including part of Douglas County in Nevada). We are proud to say that local farmers and restaurants featuring local ingredients make the Sacramento Region the Farm-to-Fork Capital of America.

The western half of Greater Sacramento is centered on the Central Valley, said to be one of the most vital and vibrant agricultural areas in the country. Along with this productive agricultural land comes family wealth - wealth often accumulated by generations of working the farm. The transfer of this family wealth is often not thought out - and even if a transfer is thought out, family differences can destroy "the best laid plans of mice and men."

There continues a strong - almost overwhelming trend away from the rural life style - and this trend means that family farms are vulnerable to estate disputes and fights over inheritance rights. Such fights can transition right into probate litigation, with the participants often hiring a trust litigation attorney or probate attorney. The odds against keeping a family farm intact from generation to generation are now staggering. According to Farm Journal, over the space of four generations, only one out of a thousand farms will remain under continued family management:

"Start with 1,000 farms; 70% don't transfer to the 2nd generation. Of the 300 farms left, 90% don't transition to the 3rd generation. Of the 30 farms 96% don't transfer to the 4th generation."

Whether a farmer's children actually farm or have left country life in Placer, El Dorado or San Joaquin County for the city, when the farmer patriarch or matriarch dies, their children might often have different ideas on the future ownership and operation of the family farm. Some will want to sell the property off as quickly as possible, while other children will act more cautiously. Some value the heritage and legacy created by their parents, grandparents, maybe even great grandparents. Others give no value to family history and farm ownership.

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Equal division of assets isn't always the fairest of most equitable estate-planning strategy for a family farm.

Many times the surviving children will have reached an agreement that the farm should eventually be sold, but only to a responsible buyer who will ensure its upkeep. Often one or more of the farmers' offspring will want to continue managing the family farm well into the future.

Whatever the case may be among various heirs to a family farm, they'll have to negotiate through their disagreements. Sometimes these differences can be settled amicably, but sometimes they unfortunately cannot be smoothed over without a judicial decision. In the latter case, estate and trust disputes often evolve from differences over the kitchen table to allegations in the Courthouse. The tragedy of estate fights over family farms is that tensions between heirs can often lead to estrangement between members of a once-united family after the parents have passed on.

Like many other estate and probate cases, the child who has assumed the most responsibility in the affairs of the family farm will expect to be rewarded for his or her hard work. The child who actively farmed alongside his or her now deceased parents will many times expect to take ownership of the property into which they've invested their own sweat ("sweat equity") over a lifetime. BEEF Magazine elaborates:

"By definition, sweat equity is an interest in increasing the value in a property earned from labor toward upkeep or restoration. The term is used to describe the value added to real estate by owners who make improvements by their own toil. The more labor applied to the home, and the greater the resultant increase in value, the more sweat equity that has been gained. What applies to real estate also applies to a ranch. The more upkeep and improvement that's put into the ranching enterprise, the more it is worth in the long haul."

Other children who moved away, meanwhile, will still claim a rightful share of their parents' estate, all of which can push the parties toward probate litigation if they can't resolve the matter outside of court.

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Estate disputes in a family farm succession can get nasty - probate litigation can occasionally even resemble this scene.

A Will is key to determining how property and assets will be divided among the children of a family farm - yet what if there is no Will? In that case the deceased parents' wealth is divided pursuant to intestate statutes - usually an equal division between all the heirs. That means the child who went to live in San Francisco, Los Angeles or Sacramento will be allotted the same amount of the estate as the child who stayed on the farm and worked the fields year in, year out. Agricultural journal Next rural poses a valid question:

"Most of us want to treat our children fairly. Many of us think that the only way to treat each child fairly is to treat them equally and we certainly don't want to be the cause of any hard feelings. We don't want our non-farm kids to feel that they have been mistreated or slighted, but if the farm business was divided into equal pieces would that equal slice be of adequate size to create a viable business and would it represent a fair outcome?"

What to do with the family farm in the case of equal division among heirs can become a complicated affair. Maybe some of the children - often those who moved away - will want to sell off the property. Maybe the child who stayed on the farm can purchase his or her sibling's shares, though this is also a potentially risky move, given that bad weather can swiftly visit financial danger on any farmer. Sometimes bank financing is available - sometimes not. In any event, a sibling who desires to stay and work the farm is often not too thrilled about taking on a mountain of debt.

These scenarios show how tangled the future of a family farm can become if there's no testamentary document like a will or trust to designate beneficiaries and determine who receives what assets. A farmer who looks down the road will realize future complications that could come into play after his passing, and that's why he'll draft a will or trust to divide estate property in the most judicious possible way. Unfortunately, all too many farmers don't take these steps, and the results are what you'd think: multiple children fighting over the inheritance through protracted litigation and a family torn apart. Even a court-ordered solution could seem unfair to everyone, no matter what their position.

In the event a farmer has created a will or trust for his heirs, there's no guarantee that every child will see their parent's decision as fair. The child who invested his or her sweat equity into the family farm might indeed receive most or all of the property worth millions, but that could leave the other children who went away after growing up with very little in the way of real assets. This creates another possibility for conflict over who is a rightful heir to estate property, with the children who feel slighted contesting provisions of the will.

Differences often arise in the administration of a trust. Where a beneficiary is a trustee, other beneficiaries who are not trustees may feel frozen out of the decision-making process. Such freeze-outs - perceived or real - generate a good deal of probate litigation. Trust litigation evolving from these circumstances often first centers on an accurate accounting of trust assets with later wrangling over assets sales, beneficiary distributions and timing of the closing of an estate. And if you're going into litigation, you better prepare for a fight:

"Only experienced, battle-hardened lawyers can marshal legal resources and seize the initiative without wasting a client's valuable time. Like war, litigation can be a nasty and expensive undertaking - a balance of risks and rewards, where success never comes with a 100% guarantee. An efficient economy of force is necessary to protect and advance client interests, and that's a system best managed by veterans with years in the field."

At times "splitting the difference" on a family farm might cause additional problems and disagreements over rights to the estate. What if the farm child inherits the land, while the non-farm children receive all the agricultural machinery and equipment and promptly sell it off, thereby condemning generations of a family business to eventual dissolution? If one sibling rents land on the family farm from another sibling, how much should be charged? All such questions should be addressed beforehand in a comprehensive estate plan that takes each child's concerns into account as much as possible while following the farmer parent's good judgment.

Modern farming economics might make impossible the continuation of a family farm with shrinking acreage - a prospect that often mitigates against partial sales of family land.

Factors for concern only multiply when other issues are addressed, from sale of land to the possibility of divorce (with the possibility of a divorced spouse taking the family farm). A will or trust that addresses and neutralizes potential dangers to the family farm's future viability can go a long way in securing financial well-being and peace of mind for both the farmer and his children and grandchildren. Otherwise, the chickens of sibling rivalry and past resentments can come home to roost with a vengeance. As a white paper issued by PNC Bank puts it:

"Recognize and address conflicts as they occur. Have realistic expectations of the issues that may arise when family members are encouraged and expected to speak freely, openly and respectfully. If disputes over the future of the farm are allowed to simmer, family unity and the long-term success of the farm will be harmed."

Good estate planning is the best method for preventing probate litigation. But if there's no will or trust designating how a family farm and its assets should be divided, the horse has left the barn - and an estate dispute could be galloping your way. Every family is unique, and the solutions to ensure that both the family farm and beneficiary rights are ensured must also be crafted with these unique circumstances in mind. Protecting your children and the continuing business of a family farm takes some hard work - but it's worth extending a legacy generations into the future.

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Having a good estate plan for family farm succession is like a skilled border collie rounding up a herd of wayward sheep.

It's only right that we end this article with some hard-learned barnyard wisdom:

  • "It's too late to close the door when the horse is out of the barn." (On the necessity for estate planning to avoid probate & trust litigation.)
  • "Pigs get fed, hogs get slaughtered." (Sharing equitably makes sense in estate matters.)
  • "The rooster comes home to roost." (Long-simmering family problems simply don't go away and will complicate estate planning if they're not addressed.)

Today the odds are stacked against family farm continuity, but with these key estate-planning lessons in mind, your family farm will have a much better chance of surviving for decades to come. Pass this wisdom on to your children and grandchildren, and you just might build a farming dynasty that's the pride of the family and community for a century or more.

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