Transfer Farmland to Children With a Partnership or LLC

How do you pass the farm to your children without cutting the deed into pieces? You put the land into a family LLC (a limited liability company, a business entity owned by its members) or a family limited partnership. Then you give the children ownership shares in that entity a little at a time, over years. The land stays whole in one owner's name. Only the shares change hands.

This page is for growers who have gone from a garden plot to owning real acreage and now want a plan for who gets it next. Most people treat this as a tax trick for the wealthy, and that is the mistake. In 2026 the federal estate tax only reaches estates above $15 million per person. For most family farms the bigger danger is that one child, or a child's creditor or ex-spouse, forces the land to be sold. The entity is mainly there to stop that. The tax savings come second.

Say three children inherit a farm directly on the deed, as co-owners. Each one owns an undivided share of the dirt, and any one of them can ask a court for partition, which is a forced division or sale of the land. A creditor or a divorcing spouse who gets hold of one child's share can use the same right.

Partition rights apply to real estate, not to ownership interests in a company. That is the point Robert Moore of Ohio State's Agricultural & Resource Law Program makes in Perils of Partition, Part 2. Once the LLC owns the land, the children own membership interests, and Ohio's partition statutes don't reach those. If the operating agreement (the private contract that sets the LLC's rules) requires every member to agree before land is sold, Moore writes, "A well-designed LLC can make it nearly impossible for land to leave the family without the agreement of the family." Under Ohio law, a member's creditor can get a charging order, which pays the creditor that member's share of distributions. The creditor cannot force the LLC to sell the land.

The same structure lowers the tax value of what you give away. A minority share in a family company is worth less to an outside buyer than the same slice of land. The holder can't force a sale or a payout, and nobody is lining up to buy into someone else's family farm. Appraisers call these the discounts for lack of control and lack of marketability. Ohio State's Farm Office puts the typical combined discount at about 35% and warns that anything larger may draw an IRS challenge.

Why not a limited partnership? Its general partner, the person who runs it, has no liability shield, so partnership debts can reach that person's own assets. Since LLCs can elect the same partnership tax treatment while protecting everyone, Moore writes that "limited partnerships have been made obsolete in Ohio" for farm families. Ohio families with an old LP can convert it to an LLC with Secretary of State Form 700 ($99 fee, 2022), plus Forms 590 and 610, a recorded affidavit at the county recorder, and a brand-new operating agreement. The sources used here don't cover general partnerships or S corporations for holding farmland, so ask your advisor about those before choosing one.

Treating the LLC's land as your own. In Estate of Strangi (5th Cir. 2005), the discounts were lost after the decedent kept living in a partnership-owned home and had the partnership pay personal expenses. The IRS uses IRC §2036 to pull such assets back into the estate. You can spot this one when the LLC's bank account is paying your bills. Fix it by paying fair rent, keeping enough assets outside the entity to live on, and not funding it just before death (Beancount, 2026).

Overreaching on the discount. Discounts stack multiplicatively: a 22% control discount and a 28% marketability discount combine to about 44%, not 50%. That is above the 35% line that OSU says invites a challenge. If your appraisal comes back far above 35%, ask the appraiser to defend each piece.

Forgetting the basis step-up. Land a child inherits gets a new income-tax basis at your death. Land, or shares, given during life does not (Porter Wright, 2026). A child who sells gifted shares later may owe more capital gains tax than if they'd inherited. With estates well under $15 million, that can outweigh the gift plan's benefit, so have your CPA run both.

Gifts the annual exclusion won't cover. The exclusion does not apply to gifts of future interests (Eide Bailly, 2026). Ask your attorney how the agreement's restrictions affect whether a gift of shares qualifies.

Losing §2032A eligibility. Special-use valuation lets an estate value farmland at its farming value instead of market value, up to a $1,460,000 reduction for 2026 deaths. Holding land in an LLC does not by itself disqualify it. But farm property must make up at least 50% of the adjusted gross estate and real property at least 25%, and a family member must have materially participated in 5 of the 8 years before death (Beancount, 2026). Gifting most of the land away during life can shrink the farm's share of what's left, and switching to passive cash rent can fail the participation test.

Your state. OBBBA did not change state estate taxes, and 12 states plus DC still impose their own (Morgan Lewis, 2025). Lifetime gifts can reduce or eliminate some state inheritance taxes (Porter Wright, 2026). Some states also have corporate-farming laws limiting which entities may own farmland; the sources here don't give current figures, so confirm your state's rules before you form anything.

Whether you still farm. An estate that owes tax can pay it in installments over roughly 14 years under Section 6166 if the business interest exceeds 35% of the adjusted gross estate. That requires an active business. A family that has moved to passive cash-rent leasing may not qualify (Eide Bailly, 2026).

Federal programs. The facts available here don't cover how FSA payment limits look through an LLC to each member. Ask your county FSA office before the deed moves.

Future law. The $15 million exemption is permanent and indexed under OBBBA, but a future Congress can amend it, and some administrations have proposed limiting family-entity discounts (OSU, 2022). Gifts already made under current law are the ones you can count on.

The tax mechanics are half the job. For the family conversations about who farms, who doesn't, and what's fair, see the human side of succession.

For a larger farm, the discount matters more. In Ohio State's example, 400 acres worth $3 million go into an LLC and the parents give 0.5% to each child, keeping 49.5% each. Each parent's 49.5% is now a non-controlling interest, worth roughly 35% less, which cuts the taxable estate by over $1 million and could save over $400,000 at a 40% rate. In the Tax Court case Astleford v. Commissioner (2008), gifted limited partnership interests in a partnership holding 1,187 acres got roughly 35% combined, and commentators report the tiered structure produced combined discounts near 85%. That tiered result is unusual. Don't plan on it.