Is fair and equal really fair or equal?
After many elections, law changes, and changes to estate tax limits, it seems like two basic questions are recurring: “what is fair vs. equal” and “should the land be divided vs. kept together.”
Year after year, these are still fundamental questions that every estate must answer. I guess you don’t have to answer the question, but if you don’t, your heirs and their attorney’s will decide it for you.
There is not a picture accompanying this article, so you will have to draw it as I describe it. Grab a pencil and paper and start drawing a pyramid with Dad and Mom at the top owning 900 acres. Then draw three arrows branching downward representing their three children and each of those children getting 300 acres. As the pyramid continues to widen, draw three more children under each child representing nine grandchildren. Each of them divide what they received so each grandchild ends up with 100 acres.
If each of your children inherits 300 acres and it gets divided by three again when it goes to their children, in just two generations a 900-acre farm will be divided down to 100 acres per person. Some call that equal and some even call that fair. What do you call it?
In that scenario, if you were the farming heir in the second generation, would you be concerned? What if you were the farming grandchild and at some point you figured out that if everything gets divided equally with no other planning and you would end up with 100 of the 900 acres, representing approximately 12 percent ownership of the current farmland. You would either need other employment or have a big checkbook and be prepared to buy out approximately 88 percent or have a really good long-term rental agreement to rent the other 88 percent for a long, long time.
When you see ths picture, what do you think? Do you think “yes, that’s the way it is” or “they’ll just have to figure it out like we did”? Or do you think “we better have some sort of entity with rules to hold those assets together”? Maybe you do not like the way that looks at all and want to develop plans to keep it from looking like that.
Now draw your own family picture, starting at the top with the oldest generation and then branch down to the next generation and then to the third generation, dividing the land along the way. Now circle the farming heir(s) in each generation. Are they going to be in a good position to succeed and make decisions in the future? Does your picture look the way you want it to look?
Even though I have very limited artistic ability, I enjoy drawing pictures when I explain things to people probably because I learn better myself when people draw things out for me. For me, when I see the picture of a farming grandchild ending up with 100 of the 900 acres, I am immediately concerned by the picture and no words are necessary.
If you are the person at the top of the pyramid, the pencil is in your hand. If you are down the pyramid somewhere, I would draw the picture and show it to someone at the top to determine if they see any concerns worth addressing.