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How many farmers have an adequate transfer plan?
We’ve surveyed several thousand farmers from MN, WI, ND and IA over the past 4 years and 82.2%
do not have an updated farm transfer plan and 87.7% do not have a personal estate plan. These statistics imply there has been very little planning for the orderly transfer of farm and ranch assets to the
next generation.
What’s the worst that can happen?
Usually it’s the dad who doesn’t want to talk about this stuff. Let’s assume he decides not to
have a will or trust and let the family deal with the assets when he dies. When he dies intestate, the state’s will takes over and dictates how assets are distributed. In Minnesota, if he is survived by
his first wife, she will inherit all the assets. The issue here is that there could be a huge tax obligation due to poor planning and because of that the farming heir may not be able to continue.
Let’s assume dad’s first wife has died, and he has remarried and his second wife has children
from a former marriage. When he dies intestate, Minnesota law says his surviving spouse gets the first $150,000 and one-half of all remaining assets, including all farm assets. The remaining one-half of
the assets would then be split between the surviving heirs including the spouse’s children from her previous marriage. It is unlikely that a farming heir could gather all those assets back together and
continue to farm. There could also be tax issues with this scenario, again due to lack of planning.
At what age should a farmer write the estate transfer plan?
Mom and Dad should have a transfer plan completed the minute they think about taking a farming
heir into the business. The plan may be as simple as hiring the entering generation for a wage on a temporary basis and then on to a complete plan including establishing a business entity, transition
plan, and personal estate plans for mom and dad as well as the entering generation. The complete transfer of the business management and assets may take several years but the plan needs to be in place
before that process starts. The plan is the families’ road map for the process.
Should a farmer consult more than one estate planner? Get a second opinion?
One of the goals of our program is to acquaint people with all the terms and rules in estate
planning, so the place to start is to try and educate yourself. Then start searching for the professionals, and start asking questions. If their answers seem questionable or they do not take a
consultative approach to the process, you may want to get a second opinion. Most professionals will give you an hour free consultation so use that time to determine if they are a good fit for you and
what you are trying to accomplish. Remember that those professionals will be working for you, so you do need to interview them as you would an employee.
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How
expensive is it to complete the farm transfer process?
The farm or ranch transfer process includes a personal estate plan, and the farm/ranch transfer
plan. They are separate processes but they need to be done simultaneously and they must be compatible. A problem in one will cause a problem in the other. The more complicated the business, the more it
costs to develop a plan. If you go the route of a personal estate plan and business transfer plan, it may cost anywhere from $3000 to $10000 depending upon how complex the business and estate plan are.
Remember, even though attorneys can not usually charge a percentage of the estate value for their services, on average the cost of probate in Minnesota is 2 to 3% of the decedent’s assets and 3 to 5% in
North Dakota.
If I start planning today, when should I have a completed plan?
Assuming you have clear goals for your business transfer and estate plan, and you have a good
professional team, I would think you could complete the business transfer and personal estate plan within six to eight months. However, to complete the process including the transfer of control of the
business and all business assets, it could take five to ten years.
Final words of advice?
Many farm families start this process but give up after a while. Based upon my experience, it
is because the family is not clear and firm about their goals for the business and their personal assets. Start with your goals. Think of your goals as the “what” of the process. What do you want or what
do you not want to have happen to your farm or ranch assets and your personal assets. Involve everyone who is involved in the farm or ranch business. Prioritize your goals and write them down. Once you
are clear and firm about those goals, you can begin the transfer process by meeting with your professional team and you will be successful.
Gary Hachfeld is a Regional Educator with the University of Minnesota, with an expertise in
Agricultural Business Management. One of the programs he works, titled “Farm Transition & Estate Planning: Build Your Exit Strategy” introduces farm families to the basics of farm and ranch business
transfer and personal estate planning. The intent of the program is to acquaint farm family members with business transfer and estate planning laws, guidelines, rules, strategies etc. With that
knowledge, the family can move forward with transitioning their business to the next generation.
Gary will present his day long seminar in Fargo on March 3 and Grand Forks on March 5. If
you are interested in attending, please call Wealth Enhancement Group at 1-800-492-1222.
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