Leading the Way

contributed article by B. Lynn Gordon Leader Consulting, Sioux Falls, SD leaderconsulting.biz

KEEPING THE FARM IN THE FAMILY PART ONE OF THREE PART SERIES

As the saying goes, “The only constant is change.” This no doubt applies to agriculture and those who farm and raise livestock. Our industry has been drastically impacted by the infusion of new technology. Although some may still prefer to record cowherd data with a pen and paper, most in the seedstock industry now rely solely on computerized record-keeping to track the many data points associated with cowherd management. Data collected through phone apps, scanners, EID readers, or other technology tools are becoming common practice in the industry.

While the production side of ranching continues to adopt new technologies and adjust to change, one aspect lagging is – estate management, – more commonly referred to as “farm/ranch family transfer” or “succession planning”. Only two percent of farms have an estate management plan in place. Some individuals may have bits and pieces of a plan or remember they told their children how they would like to see things happen on the ranch when the next generation takes over, but very few have conducted the proper estate preparation to protect their assets. “The way you received the farm from your parents is different than the way you will give the farm to your children,” says Heather Venenga-Whipple, a financial associate with Thrivent Financial, Watertown, S.D. Venenga-Whipple specializes in working with agricultural families and helping them negotiate their way through generational transfer. She has witnessed first-hand the challenges and issues associated with the planning process and cannot emphasize enough how critical planning for the future is for farm families.

“We want to be able to pass the farm on to the next generation, and this is what a good farm management plan is all about,” she says. “If you don’t have a plan the government will; –it doesn’t matter what the family wants, it will be up to the government if there is not a proper succession plan in place.”

The process should begin with forming a sound advisory team consisting of a CPA, a financial advisor, and an attorney. “These should be three different people or entities,” she notes, “one person on the team should not wear multiple hats for them to effectively fulfill their role. A team versus one individual is crucial in the case one person leaves the team, preventing the entire planning process from being put on hold or forced to restart from the beginning.”

The team of trained professionals can assist in gathering data, determining objectives, and implementing strategy. “But, most importantly they must understand farming,” she says.

COMMON CONCERNS

While every farm/ranch business is unique, Venenga-Whipple tends to see three common concerns during estate planning. These include:

1) The Conundrum of Fair/Equal

One of the most challenging issues for the senior generation to ascertain is, “Do we need to write the plan to be fair or equal?” How can they transfer their business and make sure it continues while being fair to all the children involved? Or should the focus be on making everything equal; everyone gets the same land, money, etc? “Sometimes being equal is not setting up the next generation for success.” For example, taking a $9M farm and dividing it across three children equally means $3M each, but can the children be successful with a farm that is divided this way. “Sometimes you need to keep the farm whole to make it work.”

2) Issue of Long-Term Care

How can we prevent losing the farm to a nursing home? Not everyone needs long-term care insurance and many people do not qualify for the coverage, but everyone needs a long-term care plan to cover the cost when the need occurs, the financial advisor explains. Being forced to sell land to cover the cost of medical care is devastating emotionally and financially. Again, it’s imperative to have a plan in place before the need arises, the advisor indicates.

3) Learning the Logistics

There are many questions to be answered during the process, such as what is important to you, what keeps you up at night, what are your goals, how can I get the plan written in a way so that it’s my plan, not a government plan, should we sell or rent out the farm if no one wants it or can take it over, do I need a will or a trust? The logistics take time to discuss with your advisory team, spouse, or family. “One of the biggest mistakes made is people wait too long to start to develop a plan. Seek out estate management professionals now; to help you work through your questions and concerns and begin to take steps to address them.”

Farm and ranch families have worked hard to build their legacies and want to keep harmony in the family. Therefore, it is crucial to utilize proper estate management planning steps to help to secure your financial future, transfer ownership of your farm business, reduce estate taxes, and ensure your wishes are carried out when you are gone.

B. Lynn Gordon, Ph.D., Leader Consulting, LLC. Sioux Falls, SD. Lynn is an agricultural freelance writer and leadership consultant with an extensive background in the livestock industry. She can be reached at lynn@leaderconsulting.biz or through her blog at www.leaderconsulting.biz