This week I came across a court case that once again is a reminder that failing to plan can have devastating consequences for the family, including future family relationships. Another lesson that estate planning is crucial. The case is from the Manitoba Court of Appeal – Mucz et al v Popp et al. If you think about it, the story is quite simple and typical. Some farm land was passed on from the parents to the children. The issue, however, is that the parents obviously did not think about estate planning and consider what should happen to the land if some of the children no longer wanted to own it.
Facts
In summary, the parent gifted the farm land to 4 children as tenants in common. Tenants in common ownership means that the individuals own the land jointly but each holds a particular fractional interest in the land. Given the common ownership, however, you still need all ‘to be on-board’ to deal with the land.
One of the children carried on farming operations on the farm land. Two out of 4 children had no interest in farming and wanted to sell the land. The children that wanted to continue to own the land and continue farming (the “brothers”) offered to the non-farming children (the “sisters”) the price that was even higher than the appraised value. The complicating factor is that there was a 3rd party that was prepared to offer the price even higher than offered by the brothers. The sisters, of course, wanted to get the highest price possible for their interests.
Result
The court decided that the farm land was to be sold; although the farming brother could match any 3rd party offer on the price.
Unintended Consequences
I doubt that the parent(s) would have wanted to see the farm land to be point of contention among the siblings. I also doubt that the family relationships (if any still remain) will ever be the same. The parent(s) failed to spend the time to plan as to what should happen with the farm land long-term taking into consideration the possible intentions that each child would have and the fact that at least one of the children would want to carry farming operations on the land. The children also failed by not entering into any co-ownership agreement when they received the land. Each generation failed to plan.
Lessons
Do not wait to address your planning and be realistic regarding the family dynamics and wishes of the next generation.
The parent(s) could have easily addressed their estate planning that would have set out the framework on what should happen if one of the children no longer wanted to own an interest in the land. They could have outlined that the brother(s) could purchase at the appraised value, which (I think) would have resolved the issue in this case since the brothers were willing to pay higher than the appraised value, or planned to gift the farm land to the brother and equalize to the sisters with other assets. There are possibly other options that may have been available based on the parents’s circumstances.
At the end of the day, I am certain that any costs that parents would have paid for the estate planning advice and documents would have been much less than the costs that the children spent on going through the courts to determine the fate of the farm land. The more important factor, however, is the ‘high price tag’ of ruined family relationships.
Although most of us prefer to think that things will ‘just work out’, the reality (unfortunately) is not always that. Failing to plan is planning to fail.
Thanks for reading!