In the words of Ben Franklin, “[f]ailing to plan is planning to fail.” About 90% of farming operations do not survive the transition to the next generation. There are many possible reasons why a family farm does not succeed to a future generation; however, poor estate and succession planning is a prominent concern among the agricultural industry. After all, the average age of the American farmer is approximately 65 years old with very little (if any) estate or succession planning.
In way of background, the term “estate planning” involves how the farm assets will be distributed to the heirs while “succession planning” delves into how the agri-business will continue to the next generation.
Your objectives will help guide the entire estate planning process and will be a guidepost to your estate planning attorney in helping formulate the correct game plan. As a caveat, it might not be possible to fully meet all of your goals; therefore, when you meet with your estate planning lawyer, make sure to emphasize your priorities. Generally speaking, the following are common priorities among farm families that may be of concern:
(1) To have enough income through the retirement years. Keep in mind that it is impossible to accurately predict future medical expenses and how long a person will live so liberally plan to have ample cash. Statistically, women live longer than men and should save more for retirement.
(2) To avoid/reduce the estate tax (i.e., the “death tax”) and/or mitigate probate expenses to help pass on as much wealth as possible to the heir(s). Although not taxable income, keep in mind that life insurance is estate taxable.
(3) To pass the family farm down to a future generation — whether it be the children, grandchildren or extended family. It’s paramount for these families to think about transferring the management responsibility of the farm to the future generation (e.g., phasing out period) to properly train the next generation.
(4) To treat children equally— perhaps keeping in mind gifts made during the life of the children (including help with advanced professional degrees, the purchase of a home or other major assets, or starting a business).
(5) To give the spouse ownership. Many women are especially concerned about their ability to manage the finances and or the labor of the farm or agribusiness if her husband predeceases her.
No matter your family dynamics, there is an estate plan for you. Memorialize (and prioritize!) your estate planning goals. Seek the guidance from an estate planning lawyer to quarterback the best possible game plan for your family. And periodically revisit your estate plan every few years or when there is a major life event (e.g., marriage, divorce, death, children, purchase/sale of major assets, bankruptcy).
Finally, don’t be afraid to have open and honest conversations with your family about estate and succession planning. “The only thing certain in life is death and taxes,” Ben Franklin famously said; so let us not make the topic taboo. In order for a farm or agri-business to successfully pass to the next generation (if that is what you want), clear communication is paramount to devising a successful estate and succession plan. Don’t put it off another day – speak to an estate planning attorney.
Cari B. Rincker is an Agricultural and Family Law attorney with offices in New York. She is a prolific writer, and one of the experts in her field. You can contact Ms. Rincker at:
cari@rinckerlaw.com
(212) 427-2049
Or you may read her blog at:
https://rinckerlaw.com/blog/
