Focus on the farm succession issues within your control
Problem: Should we wait for clarity on midterm election results before planning?
We have three kids with one son farming. We own 1,400 acres that are about 40% financed. We almost updated our basic wills last year, but we waited to see what Congress would do with the tax law proposals. Things look better now, but I’m still worried about estate taxes. Some farms around us are selling for 40% more than just a few years ago. It’s crazy what that does to our net worth, especially as we pay down debt. I’m hoping a new Congress will extend the sunsetting estate tax laws or even make them permanent. I don’t want to redo our plan if tax laws change. Should we just wait until after midterm elections?
– Submitted by email from E.H.
I fully understand the challenges of farm estate planning when Congress keeps moving the goalposts!
But look what’s happened while you were waiting: Land prices have gone up, competition is stronger, and input costs are higher.
In this environment, with your 40% debt load, how successful would your farm heir be if you pass away without a plan? Do the math!
If he had to buy out the other two, he’d only have 20% net equity left. Which bank will write that note? Yet, you want to sit out for another year, hoping the next Congress will save you from redoing a plan that hasn’t even been started.
Nope! Sorry. I’m not a fan of that. I’m not being harsh. There are so many farmers like you who simply want to do the right thing but don’t know their options and are waiting for more clarity.
But while you’ve been waiting, other farmers have created their best possible plan with systems in place to periodically review it, so they can focus on growing their operation instead.
Perhaps we should get over this “set it and forget it” mind-set when it comes to farm estate planning. Things change fast! Give yourself permission to make changes along with it.
We may not have the luxury of steady land prices, low interest rates, or consistent tax laws going forward. So how do we avoid overreacting or being caught flat-footed? I’d encourage you to focus on the farm succession issues within your control, including:
- Prioritizing asset distributions among your heirs (vs. dividing all assets equally)
- Defining “fair/equitable” valuation methods for buyouts and equalizations
- Establishing rental options and management rules for consistency
- Funding family exit strategies that cash flow for your farming heir
- Setting the right expectations through effective communication of your plan
Did you notice that none of this depends on congressional elections? However, these issues are all critically important for the long-term viability of your family farm.
We’d all prefer to know where all the pieces go before starting a project. However, you have to work with the world as it is, not as you would like it to be.
Sure, you could wait and maybe it will be just fine. You don’t have to have a farm succession plan in place, but remember, someday your son will compete against those who do.
Bottom line, leverage your resources and do the best you can with what you know, then optimize your plan as you go. If you have a vision for your farm, then cast it. Don’t wait for the politicians!
Mark McLaughlin is an associate with Farm Financial Strategies and a co-owner of Farm Estate GPS in Ankeny, Iowa. He grew up on a family farm near Defiance, Iowa, and shares in the fifth generation of ownership. McLaughlin has helped farm families across the Midwest develop their farm succession strategies for the last 17 years. Find an online resource to help families understand their options and take control of farm succession strategies at FarmEstateGPS.com.