By Cari Rincker, Esq. of Rincker Law, PLLC |
When looking for farm and ranch estate and succession planning solutions with increasingly challenging farm family dynamics, it’s prudent to first look at the data. Rincker Law, PLLC performed a survey sent via email and posted via social media geared for agriculture producers. This two-part series discusses the data from that survey and delves into what this might be on the state of farm and ranch estate and succession planning.
Role in Industry. Results from 58 survey takers were collected via Survey Monkey from July 27 to October 27, 2020. Participants were 46.55% farmer landowners while 1.72% was a tenant farmer. 17.24% identified as both a landlord and tenant farmer. Noted by survey takers, 18.97% were farmers with an off-farm job, a familiar scenario in the Rincker farm family. Four participants stated they were agri-business owners while two noted they were agricultural employees. The remaining 5.17% of survey takers marked “other” for this identifying question.
Age. No questions were sought regarding sex or ethnicity. Interestingly, 46.55% of the survey takers were from 35 to 44, which may be the time period when farm and estate planning becomes of interest for farm and ranch heirs. Few survey takers were less than 35 (with 6.9% between ages 25-34 and one survey taker between ages 18-24). The second-largest demographic of the survey takers were between the ages of 45 and 54 (25.86%), again highlighting the interest in this topic as they reach the age that their parents may soon not be able to farm. About 10% were between 55 to 64 with the remaining five survey takers were 65 years of age or older.
Marriage. Nearly 85% of survey takers said they were married with 15% answered that they were not married. No questions were asked about the numbers of marriages, deaths of spouses, or cohabitation with unmarried persons.
Children. Over one-third (i.e., over 36%) of survey takers said they had two children with approximately 19% noted they had one child. Approximately the same number of participants had three children or no children with 15.52% and 17.24%, respectively. Four participants had four children; two survey takers had five children; the remaining one participant had six or more children.
Geographic Area. All participants were in the United States. The majority were from Illinois but survey takers were from coast to coast including New York to California and states in between such as Nebraska, Wyoming, Indiana, Oklahoma, Kansas, Colorado, South Dakota, Nevada, Michigan, Texas, New Mexico, Arizona, New Jersey, and Virginia.
As a preliminary matter, there is overlap among the concepts of estate planning, succession planning, and business planning. They are each separate ideas with overlap affecting the global picture. Estate planning consists of the legal documents that typically affect a person upon death or incapacity. Succession planning is the game plan on how the family business will pass from one generation to the next. Business planning usually includes
a business entity such as a limited liability corporation, corporation, limited partnership, general partnership, etc. Each complements the other two and works together for the estate and succession planning puzzle, unique for each farm and ranch family. This article focuses on estate planning while the subsequent article focuses on business planning and succession planning.
Surprisingly, only 56.14% of the survey takers noted that they had an estate plan. This is bothersome because a higher percentage of participants had a Last Will and Testament; thus, those additional persons either did it themselves, which may or may not be legally enforceable, or they have fired their estate planning lawyer and no longer have a relationship with this person. Fourteen percent of survey takers found their lawyer locally while an equal number of participants (also 25% of the total) found their estate planning lawyer from someone they know personally.
On a positive note, 72.7% of survey takers had a Last Will and Testament. No questions were asked about how old the Will was or the last time it was revisited. It is positive that nearly three-fourths of the industry has at least some type of Will in place. On the other hand, 27.59% of the survey takers had no Last Will and Testament. This was surprising since only 85% of the survey takers were less than 34 years of age. This is a simple first step that every adult should have in place, even if they have no children and are unmarried. Without a Last Will and Testament, then the court decides how to allocate the estate under the rules of intestacy in that particular state. Executing a Last Will and Testament is a simple process that allows the decedent to decide how his/her state will pass.
Disappointingly, only 50% of survey takers had a Power of Attorney for Property. Without this, a family member may have to pursue a guardianship costing thousands of dollars in legal expenses if a family member is incapacitated. Drafting a Power of Attorney is a simple legal document that likely costs hundreds of dollars. Powers of Attorneys can also be used while the principal has the capacity or for a limited purpose, such as a real estate closing or communications with the Internal Revenue Service.
Not surprisingly, only 27.9% of participants had a trust. This is underutilized in agriculture. Trusts can be an extremely beneficial estate planning tool for farm families because if the trust is funded properly, the farm or ranch can avoid probate. Avoiding probate protects privacy and can reduce legal fees upon death. Another advantage is that the transfer takes place instantaneously vs. waiting for nearly a year or more for probate to be completed. This can be particularly useful to farms that participate in federal farm programs. Nearly all farms or ranches can benefit from a revocable living trust, depending on size.
It is easy to forget that life insurance is part of the estate planning puzzle. Nearly 90% of participants noted that they had life insurance; however, when asked whether they had ample life insurance to cover the farm, agri-business, and personal debt, only 67.39% said they did. More education in agriculture is needed to better inform farmers and ranchers on how life insurance can be used in the larger estate planning picture.
Life insurance is not income taxable, but it is estate taxable. No questions in this survey were asked about this concept but many people are not aware of this nuance.
The interesting part of estate and succession planning is that it should be tailored and modified in accordance with changing goals. Iowa ag lawyer Pat Dillon uses an analogy of someone juggling different goals; at any one time, only one goal is the highest priority. When asking the survey takers their #1 priority for their estate plan, survey taker had a myriad of responses:
- “Make sure it goes to the right people” or “Transfer of assets to beneficiaries”
- “Avoid tax”
- “Family to remain united”
- “Successfully transfer farm over”
- “Avoid probate”
- “Estate to provide comfort and security”
- “Transfer of land and wealth” or “ . . . pass on the legacy of our business”
- “Provide for my minor children” or “proper place for kids to go”
- “Be able to leave a viable business”
- “Keep the family speaking when this is all over”
- “Clear direction for the treatment of assets before death or incapacitation”
- “Wishes be carried out in the manner we desire”
- “To have repeat customers” or “breed marketable herds”
- “Ease of transition” or “easy transfer of ownership”
- “Pass [the estate] to the next generation [at] no cost”
- “Preserve family farm and business” or “keep the farm intact” So the “next generation can keep farming”
- “Happy kids” or “keep it all together if the kids want it”
- “Open communications”
- “Enjoying my own money”
- “Son with a disability and [I] want to set up a special needs trust”
The goals noted here were as diverse as the survey takers and the respective estate plans that would be best for their individual families. There are no cookie-cutter farm estate plans as they should be geared towards the changing goals of the family and modified accordingly over time.
There are undoubtedly roadblocks to a multi-generational farm family from getting a solid estate plan in place. When asking participants about their biggest fear when doing estate plans, survey takers noted the following answers:
- “To make sure it is done right”
- “Trying to make everyone happy without someone feeling like they got screwed.”
- “Other family feels entitled and having to pay them off.”
- “That our father will never fully retire until he dies and will not have things in order.”
- Fear that I will “miss something” or “forget something”
- “Cost” or “expensive and won’t adequately protect my family”
- “Future in-laws not grasping the whole picture”
- “Time and focus needed to be thorough and include partners’ differing views”
- “That I will mess it up and it will be a nightmare for my son. My ex-husband recently went through a nightmare with his siblings when his mother passed.”
- “Arguing [and] fighting with my siblings”
- “Losing or damaging family relationships”
- “Older family members do not want to talk about unpleasant end life decisions”
- “You have to keep reviewing it to keep fresh and see if changes are needed” or “Keep up to date with changing laws”
- “There is always the potential for the confrontation of a child not getting what they think is fair. Fair is not always [equal] and vice versa.” “Taxes – still think we did it wrong”
- “As one of two kids to the first generation who built this business, I worry that the sibling not interested in the farm will feel empty-handed for an inheritance”
- “Arguments between family members” or “misunderstandings”
- “Losing everything our family has worked for – for generations. Being taxed to death that will cause financial damage”
- “No one will cooperate”
- “It is sad that no one from our next generation is interested.”
- “Making decisions now and possibly needing to make changes later.”
To help avoid the anxiety of getting it done perfectly the first time around, Rincker Law, PLLC recommends to clients to get a simple estate plan in place immediately and perfect it over time. For example, perhaps step one is a simple Last Will and Testament, Powers of Attorney for Health and Property, and a Burial Directive. Then step two is forming a limited liability company for the land ownership. Step three is later forming a second limited liability company for the farm operating company and then creating a landlord-tenant relationship between the two entities. Step four, when funds allow, may be establishing a revocable living trust and pour over will. Then the estate will be tweaked over time as the farming enterprise has changing goals.
To placate fears on costs, there is an estate plan at every price point. The problem is when clients wish to have a champagne on a beer budget. It is also easy for some in agriculture to be “penny wise and a pound foolish” when it comes to legal services. It is paramount to find an estate planning attorney that understands the unique dynamics of your farm family and agribusiness. An estate and succession plan should be something that every farm and ranch family should budget and plan for; as stated earlier, it can be done in steps to aid in affordability.
When asking participants their ideal budget for doing a farm/ ranch estate plan, approximately 30% answered “no clue how much is a reasonable budget.” Agriculture lawyers need to be more transparent on pricing with the food and agriculture industry so it is not a mystery and scary for those considering an estate plan. About 20% stated that $1K to $2k was a reasonable budget whereas 20% stated $2K to 4K. 12.5% noted $4K to $6K. Two and three survey takers marked $6K to $8K or $8K or more, respectively. The remaining four participants said $1k or less. The important point here is that there is an estate plan to fit within each of these budgets; it may not be perfect to fulfill the needs of the farm or ranch but it is also not permanent, leaving room for later adjustments. Regarding the fear of changing laws, some estate planning attorneys offer subscription services or send periodic updates to clients informing them of changes in the law (such as estate tax). This is also why it is recommended that folks visit with their estate planning attorney every few years to revisit their plan.
Revisiting the Plan
Approximately 30% of survey takers noted that they had revised their estate plan twice. 20.69% of survey takers had only revised their estate plan once with 10.34% revisiting three times. Only four out of 57 participants admitted to revisiting their estate plan 5+ times. Rincker Law, PLLC recommends to clients to review their estate plan every three to five years, or when there is a major life event (e.g., death, divorce, marriage, the birth of a child). Estate plans are a work in progress. Farm and ranch families should have a “starter plan” that is customized, tweaked, and improved over time.
Part of reviewing an estate plan is reviewing beneficiary designations. Rincker Law, PLLC recommends to clients to review beneficiary designations every two to three years, or whenever there is a major life event (e.g., death, divorce, marriage, child born). It was surprising to see that over 40% of participants have reviewed these designations within the last year. This is higher than expected; part of the uptick may be due to the COVID-19 pandemic, forcing people to double-check their beneficiary designations or it may be due to effective education in this area. 21.05% checked these designations within two years while 26.32% checked these designations more than 2 years ago. For those people, no additional data was collected on the length of time since they last reviewed their beneficiary designations. On a positive note, only two survey-takers (out of 57) “didn’t know what I was talking about” but nearly 9% never once reviewed this.
The next article will delve into the roadblocks the survey takers cited for estate planning and why those roadblocks should not deter farm and ranch families from taking action. It will also discuss the interplay with business planning, succession planning and nuptial agreements.
- Created: 09 March 2021
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