CAN THEIR PROB­LEM BE SOLVED?

SOME FAM­I­LIES ARE WAIT­ING FOR THE ALL CLEAR BE­FORE CRE­AT­ING THEIR FARM SUC­CES­SION PLAN. THIS MIS­TAKE CAN BE COSTLY.

Successful Farming - - CONTENTS -

SUB­MIT­TED BY A.J.:

We farm 560 acres and raise cat­tle with our son. Our other son might farm af­ter col­lege. Our two non­farm­ing daugh­ters are mar­ried with good jobs. We have sim­ple wills, and our es­tate is un­der the $11.2 mil­lion es­tate tax limit. Money is tight! With the cur­rent mar­ket, I don’t know what to ex­pect next year let alone how our es­tate should be set­tled. I want to hold off on plan­ning un­til we have more cer­tainty, but the kids are push­ing to know their fu­ture, too. What can we do?

SO­LU­TION:

It’s hard to think long term when the short term re­quires your full ca­pac­ity. Tough mar­kets make all de­ci­sions feel heav­ier. How­ever, I’ve worked with farm fam­i­lies for 14 years, and I hon­estly don’t re­call a time when clar­ity was abun­dant. Even with $7 corn, some land didn’t cash-flow, debts were added, fam­i­lies didn’t al­ways agree, and politi­cians im­pacted the econ­omy and tax laws. I would re­spect­fully flip your ques­tion around: If it’s dif­fi­cult for you to op­er­ate to­day, then how could your farm­ing heir(s) ex­pect to make it work af­ter it’s been split up four ways? Would your fam­ily be more com­mit­ted to solv­ing the short-term chal­lenges if they knew a long-term plan was in place? It’s more crit­i­cal to have a farm suc­ces­sion strat­egy to­day than ever be­fore.

Some peo­ple get hung up on plan­ning be­cause they lack clar­ity on the fi­nal steps of their es­tate. In­stead, just fo­cus on your next step. You need strate­gies to get an­other five to 10 years down the road. Give your­self per­mis­sion to sim­ply re­vise the plan as more facts be­come known.

Here are four things that you can con­trol now.

1. Es­tab­lish rules to pro­vide con­sis­tency in the op­er­a­tion in your ab­sence.

2. De­ter­mine how long to pro­tect the farm be­fore it’s dis­trib­uted to the kids.

3. Lay out ba­sic terms for farm buy­outs if as­sets are sold be­tween the heirs.

4. Iden­tify where cash may come from. Op­tions in­clude cash, in­vest­ments, or life

in­sur­ance.

Your plan can be set to­day while al­low­ing flex­i­bil­ity for the fu­ture. This in­cludes man­age­ment con­trol, rental op­tions, and op­er­at­ing agree­ments to pro­tect the in­ter­ests of your farm­ing heir(s). When you pass away, maybe you want a cool­ing-off pe­riod that keeps the land to­gether for a few years to get through a tough ag cy­cle. If land was split be­tween the kids, would it make sense to give your farm­ing heir(s) the first op­tion to buy? Most fam­i­lies use some form of a pur­chase dis­count to re­flect fam­ily val­ues – not mar­ket val­ues. It’s also im­por­tant to con­sider how to fund any buy­out goals. If you aren’t sure which kids might farm some­day, you could state that all chil­dren who are ac­tively farm­ing (as in­di­cated by sched­ule F in­come or W2 in­come from a fam­ily farm en­tity) share the rental and pur­chase op­tions.

These are chal­leng­ing times. You can­not con­trol the mar­kets, land prices, ag cy­cles, or your kids’ and in­laws’ am­bi­tions. Yet, this is your re­al­ity. While it may feel like the kids are push­ing, wait­ing it out can cre­ate even more stress. What you choose to do from here is ex­actly that – a choice. I like this quote from Theodore Roo­sevelt: “Do the best you can, where you are, with what you have.” You don’t have to know ev­ery­thing to have an ef­fec­tive farm suc­ces­sion strat­egy. You just need to take your next step.

Most fam­i­lies use some form of a pur­chase dis­count to re­flect fam­ily val­ues – not mar­ket val­ues. – Mark McLaugh­lin

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