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Family divides up over dividing farm proceeds

The Appeals Court in Nebraska recently dealt with a type of family feud that's common in the state -- a dispute between the second-generation owners of a family farm.

Two sisters and two brothers inherited the family farm in unequal shares from their parents. The sons stayed on the farm and worked it, while the daughters did not -- which probably accounts for the way their parents divided their shares. Each daughter received a little over 7 percent of the farm's stock. The brothers received slightly more than 85 percent of the farm's stock in equal shares.

This put the brothers firmly in control of the farm's operating entity, a corporation. To put the corporation in the most desirable tax bracket, the brothers used legal tax write-offs to keep the farm's yearly net income under $50,000. When the farm was particularly profitable in a year, they simply had the corporation pay them wages, which reduced the farm's income.

For example, from 2012-2013, the brothers paid themselves slightly more than $394,000. They paid their sisters nothing.

Was the practice illegal? No. They had every right to make the decision to pay wages to themselves instead of paying out dividends from the farm's profits based on each sibling's shares.

Did it make the sisters very unhappy? Yes.

One of the sisters eventually filed a lawsuit arguing that her brothers were violating their fiduciary duty by not managing the farm for the benefit of everyone according to their shares.

While the appeals court ruled for the brothers, at least for now, it's unlikely the issue will remain settled if the brothers keep doing things the way their father did (which was the basis of their defense). The court indicated that their business practices could eventually be deemed oppressive since it reduces what the sisters inherited to something of essentially no value.

This probably isn't what their parents wanted for them or the farm when they were making out their wills. Feuds like this can permanently tear apart a family. Giving their daughters some shares of the farm indicates they expected the sisters to receive something out of it. However, this is a perfect illustration of what happens when estates are poorly handled and the next generation is left without clear operating directions.

For help with your own property division issues, talk to an attorney who handles probate and estate matters today.

Source: kticradio.com, "Nebraska Farm Family Feud Ends Up In Court," J. David Aiken, May 17, 2017

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