How to Create a Family Farm Trust

Farm trusts pay yearly income to beneficiaries.
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The "Washington Post" reported in 2006 that family farms are a dying breed in the United States as farms are increasingly sold to agricultural conglomerates. A 2000 study by the Kerr Center for Sustainable Agriculture outlines the loss of family farms in bankruptcy. Family farm owners can create a family trust to transfer farmland to another generation. A trust is a legal instrument that permits the management of the land and the distribution of revenue to beneficiaries, while the property is in trust. The manger of the trust, called a trustee, has a legal obligation to maintain the property properly and ensure that distributions are timely made.

Step 1

Retain an attorney. Planning for a trust requires expertise in state trust laws as well as real property law. Choose an attorney who is knowledgeable about trust and estate planning for farmers.

Step 2

Determine which assets, property or land will be placed in the trust. If you have farm land, agricultural buildings and farm equipment, consider placing all of those into the trust. A farming operation includes land and equipment, and management of the operation is easier when all of the farm, including equipment is placed under trust.

Step 3

Choose a trustee for the trust. The trustee for a farm trust is often one of the family members, but should be an individual who can ethically and properly carry out her duties. The trustee should have experience with financial management as well as knowledge of the federal and state tax codes.

Step 4

Identify all beneficiaries of the trust. The beneficiaries are the persons to whom distributions will be made yearly. In family farm trusts, the beneficiaries are usually the members of the immediate family -- for example, a husband, his wife and their children, though trusts can also be set up to include grandchildren or great grandchildren. The husband and wife will often act as co-trustees, until one dies, then the other, surviving spouse, continues to live on the farm and act as trustee while permitting a son or daughter who prefers to continue farming to operate the farm. Often the son or daughter who operates the farm will be the successor trustee upon the death of the surviving spouse.

Step 5

Decide how the trust will be structured. Trusts can be established as living trusts, in which the transfer is made while the property owner is alive and the property owner generally serves as the trustee until he dies, at which time the duties are taken over by the successor trustee, often named by the former trustee in the trust document. Trusts also may be set up to become effective upon the death of an individual and are thus connected to the will of the property owner.

Step 6

Draft and sign the trustee agreement. The trustee should take over management of the family farm once all parties have signed the trust agreement and the property has been duly placed into the trust. The trustee (or whomever is named by the trustee) must manage and operate the farm and pay income to the beneficiaries each year.

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