How to manage the complications of estate planning
It seems like I remember life being simpler with fewer moving parts. I think I look at things from all angles only to discover more angles. I try to be fair and consider risk and reward. I even like to make formulas and spreadsheets, but when I think I have it figured out, it just gets more complicated. My wife and I own 1,000 acres and have a child who farms and two who do not. Does this have to be so complicated? (Submitted by email from J.P.)
Complication might be in the eye of the beholder. J.P., I try to keep things simple and understandable when planning. Most people compliment my explanations but even then, some will say, “This is complicated.” I didn’t think it was, but from their viewpoint, it is.
Sometimes the situation is complicated before the planning even starts. Family dynamics, farm size, and farm structure can be complicated all by themselves, let alone together.
In short, my answer is, “No, this doesn’t have to be complicated.”
That said, one complication is Congress. Laws can change, but core strategies can be implemented.
What about razzle-dazzle estate planning tools? Are these solid and time-tested strategies? Or are they a flash in the pan? What if they’re ultimately unnecessary?
Let’s put it this way. I like Mountain Dew. Every can is the same. I know what I’m getting. Sorry, coffee drinkers, but I don’t like coffee. People talk about the flavors and say, “This is good coffee,” or “This is not good coffee.” Coffee sounds complicated to me. Same with farm estate planning. Being proactive is great, but be cautious on complicated razzle-dazzle tools that may fizzle out.
Too many families get paralyzed by the what-ifs while standing on the railroad tracks about to get run over. Let’s look at some controllable areas starting with the distribution of assets. Note that I said distribution, not division. I don’t prefer division because that makes things smaller.
This doesn’t have to be complicated. You either believe all heirs should be landowners, which points to entities with clear rules that protect your farming heir, or you believe your land should be owned by just your farming heir (like you own it) and the others get cash.
If they get cash, then how much? Set the formula or set a price. Formulas are fine, but they have their own way of getting complicated. Setting a price is clear.
Is setting a price fair? Well, I’m guessing there was a set price for all the land you bought in the past, correct? You’re not waiting to establish a price in the future for land you bought 20 years ago, are you? That would be complicated! So why should your family plan have “wait and see” asset pricing?
Next complication: I am a rounder. If something is $978,000, I call it $1,000,000. In light of eternity, what difference does that $22,000 make? Don’t fight for “fairness” down to the last penny.
Complications can end wherever you want them to. Sure, changing tax laws can be a challenge and farm families do need to be aware of that. Yet with proper guidance, that’s usually a hurdle, not a wall.
The last question: Who is guiding you? Proper guidance can simplify even the most complicated issues. If your advisers don’t understand the issues or intentionally complicate things for their benefit, then your first simplification may be to get a new adviser.
Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. During the past 21 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 1,070-acre crop and livestock farm with his wife and four children. farmestate.com.