Succession and Estate Planning for Farmers
If you think it’s bad that 60% of farmers don’t have a will, here’s what’s even worse: 89% don’t have a farm transfer plan, as reported in the recent article “10 Farm Transition and Estate Planning Mistakes” from Farm Journal’s Pork Business. Here are the ten most commonly made mistakes farmers make. Substitute the word “family-owned business” for farm and the problems created are identical.
Procrastination. Just as production methods have to be updated, so does estate planning. People wait until the perfect time to create the perfect plan, but life doesn’t work that way. Having a plan of some kind is better than none at all. If you die with no plan, your family gets to clean up the mess.
Failing to plan for substitute decision-making and health care directives. Everyone should have power of attorney and health care directive in their plan. A business or farm that requires your day-in-day-out supervision and decision making could die with you. Name a power of attorney, name an alternate POA and have every detail of operations spelled out. You can have a different person to act as your agent for running the farm and another to make health care decisions, or the same person can take on these responsibilities. Consult with an estate planning attorney to be sure your documents reflect your wishes and speak with family members.
Failing to communicate, early and often. There’s no room for secrecy, if you want your farm or family business to transfer successfully to the next generation. Schedule family meetings on a regular basis, establish agendas, take minutes and consider having an outsider serve as a meeting facilitator.
Treating everyone equally does not fit every situation. If some family members work and live on the farm and others work and live elsewhere, their roles in the future of the farm will be different. An estate planning attorney familiar with farm families will be able to give you suggestions on how to address this.
Not inventorying assets and liabilities. Real property includes land, buildings, fencing, livestock, equipment and bank accounts. Succession planning requires a complete inventory and valuation of all assets. Check on how property is titled to be sure land you intend to leave to children is not owned by someone else. Don’t neglect liabilities. When you pass down the farm, will your children also inherit debt? Everyone needs to know what is owned and what is owed.
Making decisions based on incorrect information. If you aren’t familiar with your state’s estate tax laws, you might be handing down a different sized estate than you think. Luckily, Louisiana has repealed its inheritance tax and estate transfer tax. However, Iowa does have an inhertance tax, but there is no inheritance tax due on shares left to a surviving spouse, lineal descendants or charitable, religious, or educational institutions. If you live in Iowa, do you have an estate plan that takes this into consideration? Do you know what taxes will be owed, and how they will be paid?
Lack of liquidity. Death is expensive. Cash may be needed to keep the business going between the date of death and the settling of the estate. It is also important to consider who will pay for the funeral, and how? Life insurance is one option.
Disorganization. Making your loved ones go through a post-mortem scavenger hunt is unkind. Succession and estate planning for farmers involves makeing sure business records are well-organized. Tell the appropriate people where important records can be found. Walk them through everything, including online accounts. Consider using an old-fashioned three-ring binder system. In times of great stress, organization is appreciated.
No team of professionals to provide experience and expertise. It generally takes a number of family members and professional advisors to properly apply a farmer’s estate plan. An good accountant, estate planning attorney and financial advisor will more than pay for their services. Without them, your family may be left guessing about the future of the farm and the family.
Thinking your plan is done at any point in time. Like estate planning, succession planning is never really finished. Laws change, relationships change and family farms go through changes. An estate plan is not a one-and-done event. It needs to be reviewed and refreshed every few years.
BONUS PLANNING TIP – Succession and Estate Planning for Farmers: Here is the most important thing to keep in mind for farmers that own their land. Although the federal estate tax exemption is $11.7 million, it is set to go back to $5 million in 2025, and may go back to that (or less) even sooner. Therefore, don’t plan on an $11.7 million exemption. Due to the size of many farmer’s lands today, and the historically radical increase in property values, many farms are easily worth well in excess of $5 million. As a farmer, you may not “feel” like a millionare, but the IRS sure as heck will treat you like one. You need to have a good tax plan in place if you don’t want your heirs selling your land after you die to pay taxes.
With or without tax issues, if you are a farmer, you need to speak with a Board Certified Estate Planning and Administration Specialist. BOOK A CALL with Ted Vicknair today to discuss you needs and secure the future of your farm and family.
Reference: Farm Journal’s Pork Business (June 28, 2021) “10 Farm Transition and Estate Planning Mistakes”