One of the most frequent cause of arguments arising around the apportionment of estates to the various beneficiaries is the question of equality. While, in many cases estates can be divided equally among the children, this is not so easy where farming property is concerned. Often the farm cannot be subdivided, be it for economic or practical reasons. When one then factors in the very high values of farmland a real problem becomes all too apparent. At this point equity needs to be considered carefully.
A simple definition of equity is fairness achieved through equality of outcome rather than simple monetary equality.
In the past, it was often the case that one child would inherit the farm and the others would pursue off-farm careers, probably in the various state capital cities. Now, with land selling for in excess of $1,250 per DSE (and often far more), it is nothing for the real estate component of the family farming business to be worth more than $10million. Couple this with the astronomic cost of city residential real estate and one can easily see how non-farming children can become disenchanted with the idea that they are being treated fairly when there is such pronounced imbalance in the monetary value of their inheritances.
In a situation such as this, placing the farm into a Testamentary Trust (or other vehicle) with a lease to the farming child and ownership of the units by all the children should probably be considered. Such a move has a range of benefits as well as a number of complications.
The key benefit is that the farming child continues with to run the farming business as a part landowner and part tenant. The non-farming children are treated equitably and, quite possibly, equally.
The complications associated with this course of action include the appropriate structure of the lease as well as provision for a sound method of reviewing the rent. Agricultural rental values move up and down and the lease must recognize this. Annual CPI reviews are an absolute no-no!
Thus, the decision to pursue leasing and syndication needs careful consideration and the advice of accountants, solicitors and other advisers. On top of this all the family members need to be thoroughly briefed on what is involved in leasing. In this way, an equitable solution which approaches equality may be achieved.
