Preparing your farm for the future
By KRISS NELSON
AMES – An attorney and farm management specialist educated area women on the top 10 decisions to remember while making real estate plans for farms.
Melissa O’Rourke, Iowa State University Extension and Outreach farm management specialist, spoke during the 2018 Women in Ag Leadership Conference in Ames.
She offers workshops and estate and farm succession planning through ISU Extension and suggests utilizing the Extension’s Ag Decision Maker in addition to other resources to help get the ball rolling for your farm’s future.
Decision No. 1: Stop procrastinating
“The No. 1 thing I tell people is to stop procrastinating,” O’Rourke said. “Many people say they are busy, but get things done the right way and stop putting it off.”
According to O’Rourke, 89 percent of farmland owners do not have a succession or transfer plan, and 60 percent are without an estate plan.
“There is no perfect plan, but having your own plan is better than no plan,” she said. “If you don’t have a plan, the state has a plan for you and you may not like that plan.”
Decision No. 2: Plan for if you don’t die
O’Rourke asked, “What happens if you don’t die?”
If something would hinder your health to where you become incapacitated and you are unable to speak for yourself and make you own decisions, O’Rourke said there needs to be a power of attorney (POA) or two to cover business and financial purposes and medical and health care purposes.
“Once you are 18 years old, you are an adult and you need to have those documents in place,” she said. “If you think powers of attorney are only for old people, absolutely not. You never know, at any age, when you may become incapacitated.”
When it comes to naming a POA, O’Rourke made these suggestions:
- Name at least one alternative agent and avoid co-POAs
- Consider people younger than you
- The health care/medical and business/financial POA may be different agents
- You must be competent (have legal capacity) when you sign
- POA is only good during a lifetime.
A living will should also be put into place.
According to O’Rourke, a living will is a declaration to use life-sustaining procedures and bring a purpose to what life sustaining procedures are desired and guides the person you have appointed to make those decisions.
Decision No. 3: Communicate with family
“Do not have any family secrets about the farm or your plans for the future,” she said. “Everyone should know what is going on.”
An outdated concept, O’Rourke said, is the gathering at the lawyer’s office with the family for the reveal of the contents left in a will.
“There are people that still think that after somebody dies we go to some lawyer’s office and have the reading of the will. This shouldn’t happen. This is outdated,” she said. “It should all be communicated. Anything that is in that will should be old news. Everybody should know what is going on.”
In order to communicate wishes, O’Rourke suggests having family meetings.
“If there is a family farm, there are a lot of things to talk about at family meetings,” she said, adding that holidays are not the time. “Businesses don’t conduct meetings that way and your family shouldn’t either.”
Setting up times on a regular basis for family meetings, establishing agendas and possibly using a facilitator are some guidelines to follow.
“The benefits of family meetings and open communication create a trusting atmosphere,” she said. “You can set goals, share dreams, discuss strategies, make decisions, delegate responsibilities, solve problems as they arise.”
Whatever gets discussed, O’Rourke strongly advises keeping proper minutes or notes of the meetings to help ensure everyone remembers what was agreed upon.
It’s also important to head off all conflict.
“Majority of farm families have conflict,” she said. “You all may not agree, but it’s better to share and explain rationale. These meetings provide opportunity to understand and respect your decisions. Communication allows hurt feelings to heal, jealousy to diminish and helps to avoid estrangement or court battles among heirs. Don’t keep secrets. Don’t let there be a surprise at the time of someone’s death.”
Decision No. 4: Stop trying to treat everyone equally, while failing to consider what’s fair
O’Rourke suggests, when making your farm succession or estate plan, to make decisions about what is fair or equitable to all, even though it may not be equal. Treating everyone equally might be the most unfair thing you could do.
The University of Minnesota Extension has a series of articles on transferring the farm that provides discussion of gifting, treatment of heirs, valuing sweat equity and helps discuss protection of on-farm heirs and fairness of off-farm heirs.
“It talks about how we deal with what we call on-farm heirs and off-farm heirs,” she said. “In another article, ‘Putting a Value on Sweat Equity,’ if you have somebody that has stayed and has helped build up the farm operation over the years, what’s that worth? Because if somebody’s been there working for 30 years, and there are four siblings, and Mom and Dad die and the idea is to let’s just divide it up by fours, is that fair for the one that has been there building up that operation all of those years?”
Decision No. 5: Coordinate your plans with your
property ownership strategies
When it comes to property ownership, O’Rourke said how your property is owned is an important part for your future plans or farm succession strategies.
“There’s different ways we own property and there are implications for how we own property,” she said.
Real property is real estate land plus anything attached to it. O’Rourke said this can be buildings, fencing and subsurface tiling.
Then there is personal property. This means things you own that can be either tangible or intangible.
“Meaning you can touch it. Tables, chairs, equipment, livestock, jewelry, vehicles – that is all tangible,” she said. “Intangible personal property, that’s your bank accounts, investments, IRAs, CDs, stocks and bonds; it’s intangible property that is useable value, even if you can’t touch it.”
O’Rourke said both real and personal property may be owned individually or jointly. Property co-ownership can be joint tenants with right of survivorship (JTWROS) or tenancy in common (TIC).
- Two or more people
- Equal shares
- Can’t sell, transfer or mortgage without consent of others
- Right of survivorship is like a built-in will
- When an owner dies, ownership interest ceases
- Two or more owners
- Separate but undivided interest
- Shares may be equal or unequal
- No right of survivorship – shares can pass to heirs
Decision No. 6: Plan
O’Rourke said it is important to plan, no matter of age or worth.
“Even though you may think ‘we’re not worth that much,'” she said.
Planning should include understanding Federal Estate Tax’s (FET) impact on farms.
FET rules include:
- FET is based on date of death estate value
- Unified credit which equals the amount of property that can be transferred at death without FET obligation, so understand how much that is
- There is unlimited transfers to a surviving spouse and charities
- As of 2018 $11 million per person or $22 million per couple is tax exempt
“But, even if you’re not worth that much, there are many reasons to plan,” said O’Rourke.
Family harmony needs to be considered. She said you would not want your legacy to be family jealousy; a plan also provides a peace of mind for yourself, spouse and family and can also help provide for minor children.
Decision No. 7: Figure out how to maintain liquidity – death isn’t cheap
“Consider the costs that arise at death,” she said.
Some of these costs to consider include:
- Farmers, as well as others, she said will accumulate assets such as land, equipment, farm buildings and livestock
- Costs of illness, medical care and funeral expenses
- Cash may be needed to continue farm operations at the time of death prior to final estate settlement
- Maintain assets with sufficient liquidity to convert to cash and cover these costs or consider life insurance
- If an heir(s) will want to buy out other heirs’ interests at the time of death, provisions need to be made for sufficient cash or credit to achieve those purposes
“Make those final disposition plans,” she said. “I don’t care how old you are, everybody should talk about this. Put those things in writing. You don’t wait for someone to have a terminal illness or a tragic death to talk funeral plans.”
Decision No. 8: Be organized, maintain good records
O’Rourke suggests making records that can be found and used by others at either incapacity or death.
“We all want to have things on a flash drive or stored on a cloud or CD,” she said. “That’s great for back up, but paper records that are not in a safe deposit box, because when it’s in a box at the bank you don’t look at it and review it. Have show and tell for people for the family so they know what’s there and how it’s organized. Give everybody copies.”
Decision No. 9: Build your team of professionals
O’Rourke advises not to try a do-it-yourself approach when it comes to estate and farm succession planning.
Who should be on your team?
It could include a legal professional, tax and/or accounting professional, financial planning or banking professional and others including insurance, real estate agents and spiritual leaders.
“The time to find an attorney is not when you have a problem,” she said. “You want to build that relationship and meet with them. Meet with that attorney at least once a year – whether you need it or not. Just like you would with a banker or a tax professional. You want them to know you, so when you have a problem, you can call them and they know you and know something about your family, your farm and they can help answer your questions and help you.”
Decision No. 10: Maintain your plans and continue the conversation
“Have regular, annual reviews just like you would have an annual checkup,” she said. “Review designations and retirement accounts. Check on those power of attorneys – make sure things say what you want them to say. They need to be updated.”
Each year, O’Rourke said to consider life triggers.
“Have there been births, adoptions, deaths, changes in health or wealth?” she said. “All of those things – divorces, separations – those things can change what might happen with your plans,” she said.
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