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Sewing the Seeds for a Successful Farm Transition?

Succession planning is one of the most important aspects of passing on a farm to future generations, but having a conversation about it is not always easy. Jolene Brown, an Iowa farmer and professional speaker, and Nelson Schoon, certified financial planner and owner of Financial Framing, weighed in on some of the do’s and don’ts of succession planning.

AgriNews recently reported some great advice about what to do (and not do!) to ensure a smooth transition of your farm to the next generation or a new owner in “Do’s and don’ts of farm succession planning.”

DO make a plan. Farm succession is critical. It’s nice when you have trusts and wills, however, when you’re dealing with transferring a business such as a farm, there’s a lot more complexity. The majority of farmers are over the age 55, and if you can believe it, 80% of them do not have a plan.

DO hire the right people in the right positions. Like any closely held or small business, the fact that you’re related to someone doesn’t automatically mean they should be working on your farm. You may have some good workers who are members of your family, but all of your farmhands should be vetted and hired correctly.

DON’T wait. Unfortunately, some farmers pass at an early age and have no plan in place. This can create major problems for family members. Contact a skilled estate planning attorney right away to help you make a plan.

DO communicate. Ask yourself whether you want the farm to continue. If so, you need to communicate your expectations clearly so that the plan is known. Families need to have a legal estate and management transfer plan or a buy or sell agreement prepared. All of the concerned parties need to discuss details that go beyond the will.

DO make sure there’s enough money. It’s not that you need to have a super-prosperous farm ready for someone to take over. The next generation needs to be prepared with a business plan of how they will be adding value if they join the farm.

DO get it in writing. Remember that a conversation or phone call isn’t a binding legal contract. Work with your estate planning attorney. He or she will make sure that everything is legal and above board.

Reference: AgriNews (September 17, 2015) “Do’s and don’ts of farm succession planning”

Should A Revocable Trust be Your Estate Planning Choice?

If you haven't considered using a revocable trust rather than a will as your main estate planning document, you could be making a critical mistake.

A recent MoneyWatch article, “5 reasons you need a trust, not a will,” lists five reasons for using a revocable trust as the primary method for disposing your estate.

1. Pass on assets privately, quickly and efficiently. A revocable trust as a vehicle to distribute your estate allows your beneficiaries some privacy. The trust isn't filed with the probate court and isn't a public document (unlike a will). Property transferred into a revocable trust during your lifetime isn't subject to the expense and delays of probate.

2. Preserve assets for heirs and charities. Changes can be made to your revocable trust anytime. However, when you pass away, the trust becomes irrevocable. The provisions that pertain to the disposition of assets to your heirs and charities will be administered by your trustee under the trust’s terms.

3. Assets that remain in your trust after your death typically aren’t considered marital property. Those assets aren't subject to division in a settlement if the beneficiary gets divorced. However, in many states, a divorce court may take the beneficiary's income interest into consideration when determining the division of marital property or support obligations.  (If this is a concern to you, let's talk about FL law.)

4. Retain control over distributions. A trust can contain language that says when distributions of income and principal will be available to beneficiaries, and it can have distributions for specific purposes like education or health care expenses. A trust can also include language for distributions based on attaining specific ages. For example, one-third of the principal is distributed at age 30, half at 35 and the rest at 40.

5. Distribute retirement accounts efficiently. If the trust is the beneficiary of your retirement accounts and if it is written correctly, the trustee can limit withdrawals to the retirement account's minimum required distributions based on the life expectancy of the oldest beneficiary. This avoids the mistake of a beneficiary liquidating a retirement account and triggering a large income tax obligation.

Please make an appointment to discuss if this strategy will work for your specific circumstances.

Reference: MoneyWatch (September 17, 2015) “5 reasons you need a trust, not a will”