Here are 10 tips to get your succession planning on the right track.
I recently saw a news segment about an Iowa farmer who had passed away. The farmer had no family and kept to himself, so when it came time for his funeral, there were many open pews in the church that day. Following the ceremony, the farmer’s lawyer leaned in to the priest and told him the parish would be receiving a large gift from the farmer's estate. In addition, that farmer left bequests to many other local churches in the area. Needless to say, the community was stunned by his generosity.
You can watch the entire broadcast here, but in a nutshell, when Bud Skalla passed away, he donated $10 million worth of his farmland to local churches. His estate plan in place, he was able to deliver his final gifts to help these churches improve, rebuild and/or expand their outreach in their rural communities.
Whether your land ends up in the hands of family members, a church, or probate court, is up to you. Without a proper estate plan in place, farmers and ranchers have little control over what happens to their life’s work when they die.
Subscribe now to Cow-Calf Weekly to get the latest industry research and information in your inbox every Friday!
I recently attended the I-29 Dairy Conference in Sioux Falls, SD, where I was a guest speaker. Another speaker, Melissa R. O’Rourke, a lawyer and Iowa State farm and agribusiness management specialist, delivered a great presentation on how to get started on estate and succession planning for the family farm or ranch. Here are 10 tips from her presentation:
1. No time like the present.
“Stop procrastinating,” she advises. “Folks delay and put off taking the steps necessary to put an estate and succession plan in place. Almost any estate plan is better than no estate plan at all.”
2. Plan for if you DON’T die (well, not right away).
“While we will all die eventually, consider that it is often necessary for someone to step into your shoes and make decisions,” she says. “We never know -- at any age -- when we may be unable to speak for ourselves. With proper planning, there are a variety of tools that can be used for what is sometimes referred to as ‘substitute decision making,’ such as a power of attorney.”
3. Don’t keep secrets. Communicate!
“Share the essential aspects of your estate plan with the entire family,” says O’Rourke. “This is one of the best ways to head off conflict and hard feelings among family members.”
4. Stop trying to cut the pie in equal servings.
“A common estate planning scheme would be to leave all assets to children equally,” she says. “In reality, bequeathing equal farmland shares to on-farm and off-farm heirs can be a disaster, and often fails to acknowledge the contributions made by the on-farm child who spent years contributing labor and management to the farm operation which equates to building equity.”
5. Take inventory and coordinate.
“While many people believe that their estate planning documents will ultimately control who gets what when you die, it is important to understand that many assets are transferred based on provisions which both contradict and supersede those contained in a will,” she explains, referring to intangible properties such as bank accounts, certificates of deposit, IRAs, annuities, life insurance policies and real estate.
6. Take stock: what do you own, what is it worth, and what are the possible tax implications?
She advises knowing and understanding the current tax rules, including the 2013 congressional action, which ruled that a married couple can pass $10.5 million (indexed for inflation) of assets free from the federal estate tax.
7. Check your liquidity levels.
“Consider the costs of a funeral and final medical expenses,” she suggests. “There is always a cost to settle an estate, be it probate or trust administration fees. Cash may also be needed to continue the farm work at the time of death prior to final estate settlement.”
8. Get organized and maintain good records.
“When you leave well-organized records and documents, the personal and legal procedures at the time of your incapacity or death will be less time-consuming, expensive and frustrating for those you leave in charge,” she adds.
9. Build your team of professionals.
“Build relationships with a comprehensive team of professionals: legal, accounting, tax, financial, insurance, real estate and farm management,” she recommends.
10. Maintain your estate plan.
Review your estate tax documents regularly.
“Certain life events should trigger an automatic review -- births or adoptions, incapacitation or death, marriages, divorces or separations of anyone who may be impacted in your estate plan,” she says.
What do you think of O’Rourke’s recommendations? If you have gone through this process before, what advice would you give to others as they start their estate planning? Share your thoughts in the comments section below.
More resources for you: