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Farmer wants to accomplish so much in his estate plan that he doesn’t know if it’s possible

The Problem (submitted by N.H.)

At 63, I have started planning in my head, but I don’t have the legal documents done. Sometimes when I’m in the tractor doing fieldwork, I try to dream up the perfect plan for my retirement and farm distribution. My wife laughs at me when I list everything off. Here are the things I can think of that would make it perfect: 

  1. Get rid of debt.
  2. Have a good income when I decide to slow down. 
  3. Pay no state or federal estate taxes.
  4. Pay very little income taxes. 
  5. No attorneys make money off my farm.
  6. A nursing home doesn’t take my farm. 
  7. My land does not get divided. 
  8. My in-laws don’t steal the farm if they get divorced. 
  9. My kids keep getting along. 

The Solution

Ahh,

N.H., such a simple wish list. When you were young was your list for Santa this long? With only 620 words, I will mention some solutions, and my answers will match your wish list numbers.

  1. You have several choices: (a) Quit spending money on iron. (b) Live until your debts are paid. (c) Pray for $7 corn. (d) Get life insurance to wipe out the debt at your death. 
  2. For many farms, adequate retirement income depends on how many families you’re trying to feed. Feeding you and your wife is usually not the problem; feeding several other families can make it challenging. If someone needs to get a second job, it should be them – not you or your wife.
  3. With the current limit of $11.58 million per person, plus another $1.1 million for special-use valuation plus discounts for entities, most estates under $35 million for a married couple shouldn’t pay federal estate taxes, with planning. The catch is the state you live in. Some states are coupled with the federal limits and others are decoupled. Make sure to know your state limits. 
  4. Income taxes are not all bad. At least it usually means you are making money! Machinery leases, charitable trusts, and contract sales may all help spread out the income if you retire.
  5. Minimizing attorney fees is a common goal. Documents such as revocable trusts or life estates can help. Having qualified and knowledgeable executors and trustees can also minimize some of these expenses. Ask the attorney about costs before proceeding.   
  6. Remember, one way or another, someone has to pay. You can give all your assets away, but that leaves you with no income. Some tools may allow you to keep the income and protect the principal, or you can buy long-term care insurance. 
  7. Do you want one person to own it all or one entity with multiple children owning the entity? You get to decide. Simple question: Would you want to own your farm with your siblings? 
  8. Be careful who you give things to or who inherits assets. Communicate early and often. Discuss your concerns about commingling of assets.
  9. Attempt to be fair and communicate at least some of the basics. Get documents signed. Remember, your head gets buried along with you. 

Like your wife, others may laugh at your list, but I don’t think it’s crazy. Not everything on your wish list is free, and you’ll need to find a trustworthy person to help you. Ultimately, you’ll probably need to write a few checks to resolve your concerns and hire your favorite attorney to prepare the documents. That could be money well spent to accomplish your perfect plan! 

Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. During the past 19 years, he has worked exclusively with farm families across the Midwest to develop farm transition strategies. Friesen grew up on a Mountain Lake, Minnesota, farm. He owns and operates a 950-acre crop and livestock farm with his wife and four children. farmestate.com

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