Michigan Farm News has Schwarz in Recent Succession Article
Succession Planning Part 2: When creating a succession plan, farmers should think of ‘breaking the farm apart’
March 20, 2019 Category: People, Crops
by Mitch Galloway | Farm News Media
WHEELER — The paper signing is a blur now to Nicole Ward, who is a year removed from taking over a 14-acre apple orchard in Midland County.
Yet, what isn’t blurry or fuzzy or grainy for the apple grower and cider maker from Wheeler, Mich., is the image of the white farmhouse — the one where her husband’s grandparents couldn’t live in “by themselves” and where the whole process of being involved with the orchard began.
When Nicole and husband Rafe decided to become sole proprietors of Eastman’s Antique Apples LLC in 2018, the couple thought shifting from six “cooks in the kitchen” to two would be a smoother way to operate a business. Instead, it proved to be both a blessing and a curse, a daydream and a nightmare, said Nicole, who continues to lean on her in-laws’ shoulders for advice — like what pressure to use when bottling cider or where the cheapest places for gas are.
“With six people doing all the work, there was a division based on strengths and time available,” Nicole told Michigan Farm News. “But when you shift from four people to two people (to) one — because my husband still has his other job — that’s a huge challenge. All of sudden, you were starting to hear about things you never knew happened in the business ... but someone was taking care of it, so that’s great.”
According to Nicole, they “were trying to figure out what made the most sense, and (Rafe's parents) were retired and wanting to enjoy friends, family, travel, whatever.”
“There came a point where my in-laws … didn’t want to be in the business anymore,” she said. “We always said (that) if somebody wants out, you need to say so because what we didn't want to happen was the anger, the resentment, the issues.”
After becoming sole proprietors of the Midland County farm, she and Rafe focused on the hard cider part of the business, not just selling apples. Today, their hard cider business, Forgotten Ciders LLC, distributes product on-site at 1068 W. Midland-Gratiot County Line Road in Wheeler, Mich., as well as at the Midland Farmers’ Market and bars, restaurants, and party stores across the state.
In 20 years, experts say the farm won’t look like your grandfather’s, and this isn’t a jab at your grandpa who ran his 2,000-head dairy farm until he could no longer tie the shoelaces on his Red Wing boots.
It’s a sign that times are changing.
With roughly 371 million acres of U.S. land forecast to change hands over the next two decades, more Michigan farms like the Wards’ will start looking different.
John Schwarz, a third-generation farmer and founder of the Hudson, Ind.-based Schwarz Law Office PC, said farmers must have the “right (legal) structure” in place to get ahead of this succession sea change.
According to Schwarz, 36 percent of farms in the country are still operating as a sole proprietor, which means farmers are “taking on more liability than they should.”
“They are leaving some tax incentives on the table,” said Schwarz, who’s assisted dozens of Michigan farmers. “They're really restricting the ability that they have, or the options they have rather, to pass on the family farm.”
Schwarz, who’s been part of “hundreds” of farm estate plans, said he will not “talk about succession planning until getting the farm set up in the right structure.”
“So, usually, the right structure consists of having a farm operation that's an LLC, having a land-holding company that's an LLC and then, maybe an equipment holding company that’s another LLC,” he told Michigan Farm News. “We need to break the farm apart a little bit. What that does for us, and you can instantly get some benefits to the farmer, is … you drastically increase your liability protection… you get some better tax treatment … (and) it sets up a scenario where now you can, more so, get farm assets to farming children.”
According to Schwarz, a farmer can create an LLC in a couple of weeks with the “right guidance.”
“Let's say you have three children,” Schwarz said. “You have Peter, Paul and Mary, and Paul is the only one that wants the farm. Peter and Mary don't want the farm. Well, you can transfer that farm operation, if you will, to Paul. And there's not a whole lot of value there. So for people who are considerate about fairness and being equal and those things, really the farm operation is just a hub, just a structure, and we can pass that on. Most importantly, we can do it gradually via shares to the LLC, membership units. And we can bring him in slowly. We can bring them in more expeditiously. That way Mom and Dad are doing a gradual withdraw — if that's how they want to do it.”
In Nicole and Rafe’s case, the farm’s “always been an LLC.”
“We always knew that if something happened with this business, we did not want the land or our personal assets to be at risk, and that’s a huge thing,” Nicole said. “You have to be smart about this kind of stuff. It's like $75 to set up an LLC online, and I'm not great with paperwork stuff, but even I could figure out how to do it.”
According to LLC University, the price for setting up an LLC is anywhere from $99 to $1,500 depending on if a person hires a lawyer or uses a website for the installation. The Wards were represented by the Midland-based law firm Poznak, Dyer, Kanar, Schefsky, Thompson plc.
By using an LLC and breaking up parts of the farm into separate entities — e.g., machinery and farmland — Schwarz said it “allow(s) us to give slowly, to transfer slowly (the farm), to do it without taxes.”
“You get the instant benefit,” he said. “I mean, you get instant liability protection. You get better tax treatment. … If you look at a farm, if you have a couple-thousand-acre farm, you used to say, ‘Well, how am I going to pass this on?’ It’s daunting because there are so many different parts to it, but break the farm down, get the right structure. People are always amazed how easy it is then to start transferring.”
Schwarz added that the people who “get the farm in the right structure first, it drastically — and I can’t stress enough — improves the ability for people to get a plan together.
“It simplifies it so much.”
Comments
Post a Comment