5 tips to start your estate planning
It’s a common refrain among too many farmers and ranchers today: “We know we need an estate plan, but we don’t have it yet. We’ll get to it one of these days.”
Often, “one of these days” never arrives, then an abrupt, unplanned change happens — a farm patriarch or matriarch passes away, a family divide develops, or the next generation steers away from taking the reins of the farm — and suddenly, you have a major problem. Changing family and business dynamics means you’re going to have to make some tough decisions to sustain your family farm business. And it may cost you.
Some of the most progressive, successful and otherwise proactive farmers fail to develop estate plans until the immediate need arises. It’s a common mistake in agriculture; you’re busy with the daily operation of your farm and short-term planning. It makes it tough to take the time to plan for the distant future, especially when those plans are often facilitated by something like a death in the family — the type of thing you don’t necessarily want to think about. But developing some kind of plan for the future of your business is immensely important.
“My husband and I decided we needed to pass on the farm when it was just him and me, so we developed a trust years ago. When our son Howard came along, we added him to the trust, then added his son Taylor to the trust when he got started,” according to Rose Ann Overman, who operates her family farm alongside her son and grandson near Liberal, Missouri. “We all have shares in the trust, and we pretty well know how everything is going to go.”
When Rose Ann’s husband, Howard’s father, passed away, the estate plan the family had developed helped them continue operating the farm just as they had before, with Rose Ann as the primary business decision-maker and Howard taking on the management of day-to-day operations. Howard recognizes that one day, sons Taylor and Brandon will become the primary managers of the farm.
“They made sure we had our trust established so that if I pass away, Taylor doesn’t have to pay a major death tax. That’s a big deal for a lot of farmers. I know a lot of farmers around here who haven’t paid enough attention to that,” Howard said. “As farmers, we think we’re never going to die. When somebody does, they sometimes have to sell the farm to pay off the estate. I don’t want that, my dad didn’t want it, and so that’s why they set up the trust years ago and that’s why I keep it updated.”
If you’ve yet to begin the estate planning process for your farm, here are five tips to get you started:
- 1) Communicate openly. Building an estate plan for a farm involves a lot of decisions, but also a lot of emotion. It is a family business, after all. It’s important to voice how you feel throughout the process to prevent resentment from building up. Communicating wishes and needs from the start of the process will help make those known if something does happen before the plan is completely assembled.
- 2) Understand that fair doesn’t always mean equal. Fairness and equality aren’t the same things, and it’s an important distinction to make as you build your estate plan. Sometimes, the primary successor’s siblings aren’t involved in the operation but have a financial interest. It’s important to treat individual successors fairly based on their involvement and stake in the farm’s finances.
- 3) Know your costs and how you’ll cover them. In the event of a death in the family, there are always costs for things like medical expenses and funerals. Sometimes those costs can complicate the settlement of an estate, so it’s important to set aside enough money — or the liquidity to gain access to that money — well ahead of time. A death in the family is typically a tough occasion for any family, and it’s certainly not when you want to be making major financial decisions.
- 4) Be organized. Farmers have used everything — from the back of their hands to sophisticated management software — to maintain farm records. When planning for a smooth farm succession, it’s important to keep comprehensive records in a format that’s clear and accessible by other members of your family and farm business. If something happens to the primary recordkeeper on the farm, others need to be able to both access and understand all records and information relating to the settlement of the estate.
- 5) Work as a team. Just like with the everyday management of a farm, a team approach is best when establishing and updating an estate plan. Discuss shared goals among individual members of the farm business, as well as your legal team, accountant, tax professional and farm manager. Expressing goals to all members of that team will go a long way to establishing a strong estate plan.
Twenty-seven-year-old Taylor Overman will one day take the reins of his family’s farm, much like his father Howard has done in working alongside his mother Rose Ann. As he grows his management experience along with his day-to-day work on the grain side of the family farm, he said he feels fortunate to be part of an operation in which his predecessors have devoted so much energy to estate planning. Taylor will continue that planning as he becomes more involved in the farm.
“My family’s done a lot of planning; I wasn’t involved, because the estate plan was already in place,” Taylor said. “I want my son to have the same opportunity I had when he is my age. My family wants to keep this farm together for a long time.”
*Disclaimer: Conterra Ag Capital is not a law firm and cannot give legal advice. Information provided on this website is not intended to convey or constitute legal advice. If you need legal advice, you should consult a qualified attorney
