Traditional Method of Farm Succession Planning Broken…. Here is How to Fix it. (Part II)

 

 Broken windows theory - Applied to the organizational culture

 Part II-Reasons Plans Do Not Get Established.

 

(Authors’ Note:  This will be a several part series discussing why the current method of farm estate and succession planning is not working)

 Last month we discussed the fact that statistics show that in the past 10 years, there really has not been much in the form of improvement as to estate and succession plans being created by farmers.    Overall, 75% of farms in the country do not have a succession plan, and that number is roughly the same from ten years ago.  Probably a good follow up analysis, which I have never seen anyone perform, is of the 25% of farms that do have a succession plan, what percentage of those are successful?

Continuing our march towards identifying what is wrong with farm succession planning and how to fix it, we need to first look at the upcoming “farmestateaggeddon” that will happen this decade.  According to USDA data, a whopping one-third of America’s 3.4 million farmers are over the age of 65.  Nearly a million more of them are within a decade of that milestone.   Meaning, by the end of the decade, the majority of farmers will be over age 65 by a ratio of about 2 to 1.  Data also shows that of the roughly 2 million farms in this Country, 500,000 will have owners that retire this decade. 

    Safe to say, if the farm industry keeps doing what it has been doing with lack of succession planning, we are really setting ourselves up for some cataclysmic outcome from what transpires this decade.  I believe deep down the vast majority of farmers want to take action that ensures the longevity of their farms.  But, over the last 16 years, I have seen a lot of reasons why action is not taken, and I present these to you as follows:

 1.      Fairness:   Someone once said “fair is like ugly, it is a matter of opinion”.   How true that is.  There may not exist any other area that is more subjective than “fair”.  For farmers, trying to figure out what is “fair” will bring the ability to establish an estate and succession plan to a screeching halt faster than driving into wet concrete.  Quite frankly, I think “fairness” is the number one reason farm estate and succession plans do not get created. I’ll talk on this in the later parts of this article.  For the meantime, if arriving at the holy grail of “fairness” is what has been holding you back, you are the norm and not the exception.

 2.      Fear of the angry heir:   Right behind fairness has to be the fear that treating heirs differently, usually by way of leaving more to farming heirs than non-farm heirs, will make a child mad at mom and dad.  I’ve never really understood this one.  First, the assets belong to the makers of the estate and succession plan.   They could give them equally, unequally, not at all, give away to charity, cash out and go to Vegas, etc.   In other words, whether someone will be angry at your decisions made in a plan should be of no concern to you.  The recipient should be happy they are getting anything at all. 

Your job is not making people “happy” with your plan.  Your plan, depending on the goals you have, is seeing that you are adequately taken care of in retirement years, minimize taxes, and hopefully keep the farming operation around for several more generations.  In fact, no matter what you do may make your children or heirs “happy”.  Now, allow me to really throw some cold water on you and point out that at some point, you will be dead.  All of us will be.  How much will we care if someone is not “happy” with our plan when we are dead?   I’m guessing not much.  The blunt take away from this is that you need to devise a plan that is best for you, the farm operation, and for those that have toiled in getting the farm operation where it is.  Then be prepared to utter the words of Pontius Pilot, “Quod Scripsi, Scripsi, which is Latin for “What I have written, I have written”.

 Over the years, when a farming child is receiving more than non-farming children, I write language in the will or trust stating that the parents acknowledge the plan is not equal, the inequality is not made out of lack of love, and recognizes that without the farming child, the parents would never have achieved the level of success with the farming operation had it not been for the help of the farming child or children.  Several times I have seen that type of language pay off.  In the end, if there are heirs that are not happy, well, too bad. 

 3.      Not knowing where to begin:   I understand that there is all sort of information out there in the world today, and how does one know what is correct?   I mean, you can go to the Google School of Law and be subjected to information overload and for everything you read about, you then read about a yang.  How does one know what estate planning documents they should have?  How does one know whether the farm should be incorporated, established as an LLC, or other type of legal entity.  What about planning for long term care? (i.e. the nursing home)  

 To me, not knowing where to begin is not really a good excuse.  For example, each year I have a professional CPA handle my tax returns.  Most of us do.  I do not know all the ins and outs of personal income tax.  That is why I hire a professional.  I trust this individual and believe that she will do what needs to be done so I pay the amount of tax that is required, but at the same time that all applicable credits, deductions, and so forth are accounted for.  The same rings true for finding attorneys that can assist you in putting together a farm estate and succession plan.  Although attorneys who understanding farming are in the vast minority of the legal pool of professionals, they are out there.  Find them and utilize them. Even if you have to travel hours to work with an estate planner that knows farming.  The time you spend traveling and in gas will pale in consideration to you having to explain the difference between a corn row and a fence row to an estate planner. 

 4.      Someday Never Comes:  John Fogherty has a famous song “Someday never comes”.  I’ve questioned if this should be the theme song for farm estate and succession planning in this country.  Why does someday never come?  Because, as farmers we think year to year.  We finish this year’s crop, and then start focusing on next year.  And, for the most part, no one finishes a crop year and contemplates their death inhibiting them from farming the next year.  In other words, we finish one crop year, the treadmill slows down, and then shortly thereafter it speeds up again.

The average age of the farmer in this country is now 64.  If you are 50 or older and reading this and you have no plan and no successor named, or you have a plan that does not put farming children in the best position to continue the farm, you need to do something.  I’ve seen too many people pass after 50 from farming accidents, heart attacks, strokes, and other ways of demise that do not seem to occur much earlier in life.  We know how much sand is in the bottom of our hourglass, but not the top.  Do not let the hourglass top run out of sand and have “Someday never comes” be playing. 

5.      Cost.   As farmers we tend to be a penny pinching bunch…as long as it does not come to land, machinery, and other elements that farmers enjoy owing.  I always joke with clients that I do not sell anything “fun”.  Rather, I sell ideas, paperwork, and plans.  All of which is much less “fun” than a piece of new machinery or, for that matter, most of all other farm assets.  All jokes aside, a good farm estate and succession plan should run somewhere between $2,000 to $10,000.00.  Maybe for very large operations the range is higher, but, over the years I have consistently almost all farm estate plans run in that range.  Remember, a large floater tire for a spreader, combine, or other implement can easily run $6,000 to $8,000.  If the legacy of your farm is not worth the price of one tire, I would question how committed you are to that legacy.

 6.      “Let the Kids Figure it Out”.   I’ve heard this over the years more so than I would like to hear.  The last time I heard it, I felt inclined to state the person was a bad parent and the Department of Child Services (DCS) should be called.   If this is your strategy, it will assuredly be a judge, and not your children, that will be “figuring things out”.   Instead, a well-crafted succession plan will have LLCs, a trust, wills, and other documents that clearly define the plan and keep heirs out of the courthouse.

 Obviously, the above is not an all inclusive list, but represents what I would say is the lion’s share of the reasons for inaction I have seen over the years.  Whatever the reasons, to meet the wave of farmer retirements and transfer of farm operations this decade, the farm industry needs to greatly invest in estate and succession planning if agriculture in this country as we know it is to survive the next decade.

 John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 16 years and is passionate in helping farm families establish succession plans.  Natalie Boocher is a farm elder law and Medicaid planning attorney helping farmers protect their farms from the nursing homes and Medicaid.  Both can be reached at 574-643-9999 and www.thefarmlawyer.com.     Go to www.farmlegacy.blogspot.com for past articles. 

 

 These articles are for general informational purposes only and do not constitute an attorney-client relationship for specific legal advice.  

 

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