This blog is maintained by John Schwarz, who is a third generation farmer and an agricultural law attorney. Most attorneys don't know a corn row from a fence row. However, John is different. He has been a farmer his entire life and is passionate about helping fellow farmers. When you need help with an ag/farm matter, it makes sense to have a farming attorney help you.
Will your farm be in the 97% club or the 3% club?
Will your farm be in the 97% club or the 3% club?
One of the
overriding goals that farmers have is that their farm operation continues on to
a successor. Then why is it so difficult
to get farmers to put a succession plan in place? A
recent statistic stated that only 33% of all farms in this country will pass to
the next generation. That number does
not seem shocking. Of the farmers that
are over 60 years old, representing the “current generation”, it is entirely
plausible that only 1/3 of the farms transfer to the “next generation” (i.e.
people aged 30-60) over the next 15-20 years when the current generation
same statistic source went on to say that of the 33% of farms that transfer to
the “next generation” only 10% of those will pass to a third generation.Whoa.Let’s
take a second and do some math.We have
roughly 2 million farms in this country.If only 1/3 transfer to the “next generation”, then that means we drop
to 660,000 farms in the next 20 years or so.If only 10% of these farms go to the “third generation”, that means we
are looking at only 66,000 farms in this country within the next 40 or 50
years.This means only 3% of the farms
in this Country will remain, and that we lost 97% of the farms that
this really be possible?Well, let’s
look at historical numbers.In 1935, we
had about 6.3 million farms in this country.Today, we have 2 million.Crunch
the numbers, and this means over the past 83 years we have had a 68% reduction
in farms in this country.So, assuming
various laws of nature, doctrines, and other analytical aspects that are above
my pay grade hold true, I tend to think that if we have seen a 68% reduction in
the number of farms in this country thus far, it is not out of the question to
see a 97% reduction of farms going forward.
you would like to see your farm continue for future generations, I would pose
the question what are you doing to ensure
you are NOT in the 97% club?Unfortunately,
what most people are doing is a whole lot of nothing.Check out these statistics:
1.73% of farms in the country have not identified
a successor.Note that we are not
talking about having a succession plan, we
are talking about having decided who takes over the farm.I find it stunning that ¾ of farms have no
idea who takes over.
2.31% of farmers recently surveyed said they would
“never retire”. If someone is “never
retiring”, do they put a succession plan together??Likely not.
3.Of farmers who will retire, 30% say they will do
it in their 70’s.Working later puts off
havinga plan in place, greatly
increasing the chances the farmer dies without a plan.
4.54% of farmers are seeking retirement advice
from their family.That’s great if you
have qualified people in your family.Otherwise, does your family really know issues such as Medicaid, Medicare,
investment strategies, capital gains and so forth?
5.45% of farmers surveyed said they are relying on
“no one” when it comes to obtaining retirement information.
6.36% of farms in the country are still operating
as a sole proprietorship, which can greatly limit succession planning options.
Sadly, 80% of farmers
surveyed have stated they want the farm to carry on to the next
generation or someone who will carry on the farm.So, if the desire is there, why is the
action not there?Another professional
involved in farm succession plan told me:“People like the concept of succession, but they don’t care for the
actual ‘work’ of making it happen. They want the outcome, without putting in
the effort necessary for success”.This
strikes me as odd since as farmers we put the work in to raise a good crop, put
the work in to grow our farms and so forth, but fail miserably when it comes to
putting the work in for a succession plan.
answer?Well, there is no easy answer,
but I do think younger farmers need to lead the charge in making sure plans are
in place.After all, why would the young
farmer want to stick around if there is no plan in place to ensure their
future?I tell young farmers do not be
afraid to throw down the gauntlet in getting their parents or grandparents to
put a plan together.As for the older
generation, they should ask themselves whether they want to their farm to be in
the 97% club or not.If you would rather
be in the 3% club, then it is going to take some work.
used to be more motivated to establish succession plans out of fear that
federal estate taxes would eat up the farm.Now, with the ability for a husband and wife to shield 20+ million from
federal estate taxes, that fear is gone, and so is the driving force for a
succession plan.However, people should
not forget about nursing homes.The cost
of long term healthcare continues to rise and I have no doubt we will see more
and more farms lost to nursing homes and the cost of long term care.So, if anything, motivation should come in
the form of not having the farm eaten up by nursing home and long term care
closing, if a farmer is thankful for the opportunity to have been a farmer and
wants that opportunity to be available to the next generation, then work needs
to be done to make it happen.It is not
going to happen on its own.Else, there
is a sure bet the farmer has bought membership into the 97% club.
there is one thing I wish I could get clients to understand is the fact that
even if your farm has liability insurance, you are likely under insured with
your current liability coverage. Essentially,
if you have a million dollars of coverage, or several million, the coverage is peanuts
now days.How big a bag of peanuts?
Well, here in Indiana we recently had a whopping 35 million dollar verdict
against a defendant for causing an accident that left the plaintiff a
quadriplegic.Similar verdicts have been
handed down across the country as of late. You can read about it here: https://www.theindianalawyer.com/articles/45836-recent-35m-verdict-is-among-largest-indiana-jury-personal-injury-awards As
one attorney stated “jurors are increasingly less offended by requests for
million-dollar-plus verdicts”Whoa.Wasn’t it not too long ago
society was up in arms about a woman in Texas getting several million for being
burned by hot coffee?It sure was.But, as another attorney stated, “the shock
Crop insurance plays an ever increasing role in modern farming. However, like any safety net,
crop insurance can be wrought with holes.Over the years I’ve seen producers have their claims denied for many
different reasons.Often times these
reasons are really no fault of the producer.Simply stated, the federal crop insurance rules are very complex and can
be unforgiving. Generally,
when a producer believes they have a claim, they call up their agent.The agent then submits a claim and at some
point an adjuster is assigned to the case.The adjuster comes out to the farm and evaluates the crop, measures bins,
and so forth.Although the adjuster
should be well versed in the procedures, sometimes such is not the case.We had a case a few years ago where the
producer had frost kill the corn before it reached maturity.The producer wanted to have the corn salvaged
for silage.The adjuster informed the
producer that strips would have to be left in the field for further
Using multiple LLC's can drastically increase the liability protection for a farm. This article discusses the layout of doing so.
First though: I generally hate disclaimers, but
I find it necessary to state a few.First, this article is for general information only and is written for the
benefit of fellow farmers to consider in structuring their farms.Second, state
laws vary, and this article is not state specific.Third, if you feel the need to comment on
whether you disagree or that I’m wrong, please first go to:https://www.extension.purdue.edu/extmedia/ppp/ppp-91.pdf.It is an excellent publication from Purdue
that is in line with what I am writing about in this article and gives some
real life examples.
the last article, I wrote about how liability insurance is a necessity, but
with the trends in jury verdicts, it may not be enough to save the farm.In other words, you could get a judgment
against your farm for more than the policy limits of the insurance. Structuring