Within the last two-and-a-half decades tremendous increases have occurred in the value and size of farm operations and in the amount of capital required. These increases and enactment of the 1976 Tax Reform Act have cast the estate planning problems of farmers in a new and more critical context. The farm owner-operator has certain objectives which he wishes to accomplish through estate planning, constrained by certain factors which influence his situation.

The uninterrupted operation of the farm may be jeopardized during intergeneration transfer. If an heir wishes to continue operating the farm, he must raise enough capital to complement his equity in the farm so that he may purchase the assets of the farm. This problem is further compounded by administrative expenses, estate taxes and inheritance taxes.

A survey was made of rural residents in Virginia in 1976 who attended estate planning meetings. The majority of the individuals surveyed had either no formal estate plan or a will only. Less than one-fourth had used life estates or trusts in their estate plans, and approximately only one-fifth had made gifts.

According to a case study analysis of alternative estate plans based upon three actual cases, estate plans which utilize a will only resulted in the highest capital erosion from the estate of the alternatives considered. Estate plans which utilize a will, gifts, and trusts or life estates resulted in the least capital erosion. The plan which equates the present value of the marginal tax on the husband's and the wife's estates resulted in the minimum taxes and administrative expenses.

The major implication drawn from the study is that an expanded educational effort is needed to provide farmers with an understanding of alternative estate plans which would aid them in making decisions concerning their own estate plans.