Keeping the Family Farm in the Family

[originally appeared in the Prairie Farmer magazine – reprinted with author’s permission]

“We worked hard to pay for and build up the farm to what it’s worth today.  We couldn’t have done it without the help of our son (or daughter).   As we do our estate planning, how can we be fair to all of our children?”

So begins the conversation these days between farm couple and professional advisor. While some may think of estate planning as merely estate tax planning, taxes are just one issue. The most difficult and important matters may have little to do with taxes. Creating and carrying out plans that will assure fair—while not necessarily equal—treatment of your loved ones is such a matter.

Fairness Is Essential

Taking responsibility for this fairness issue is critical to the long-term health of your family and your legacy. Fail in this regard, and there might never again be a complete family reunion. Stick your head in the sand and you can count on the family farm becoming part of the holdings of the highest bidding neighbor.

We have to face the facts: our society has changed. Children used to stay in the area, marry neighbors, and continue the family farming traditions. Daughters became farm wives and sons became farmers. Now families have at most one or two children still in the farming operation. The others have moved on and away to different careers. The child who is heavily invested—in time, energy and dedication—may very well depend on this farm for a livelihood. To some degree he or she has earned the “right” to keep it, considering that the others moved on to often more lucrative careers and less risky futures.

Despite the changes in society, however, our core values remain unchanged. We want to treat our children fairly. Farming is “in our blood” and we want to see it—this farm—go on. We want to know someone in the next generation who shares our love of farming will carry on the tradition.

You Must Take Responsibility

The hopeful but naive person says, “I just can’t figure it out for them. My kids all get along, they’ll be fair with each other. They’ll divide the property agreeably.” Don’t do that to your kids! Johann Kaspar Lavater provided timeless wisdom when he wrote: “Say not you know another entirely, till you have divided an inheritance with him.” The wonderful kids today will become competitors, easily persuaded—by their spouses?—that they are entitled to their full-value, equal share.

A friend told me recently after suffering through an ugly family farm estate settlement that his parents would have done much better planning and it wouldn’t have been so stressful to them if they had started when they were younger. They waited to do serious planning until around age 80, and the plan did not work as they had intended.

It could have, and yours can if you start soon, look with experienced professionals for carefully tailored solutions, and then follow through. Focus on the results you want to see; let the attorney worry about what legal papers—wills, trusts, buy-sell agreements, partnerships, etc.—will be needed.

Where To Begin

If you commit yourself to a proactive planning process it is possible to achieve fair results that the family will understand and accept. In this extraordinarily complex arena you will need professional counsel.

It’s easy to find attorneys who say they “do estate planning”—but much harder to find one who knows farming and will help you develop and implement the solutions that will fit your unique goals for your family. To see if an attorney can help design a plan to fit your particular circumstances, ask some questions:

  • What percentage of your business is devoted to estate planning for farmers?
  • Have you seen those plans play out completely and work well?
  • How will you assure that my plan stays current with the law?

If you begin now to ask the right questions you will be able to develop the right plan for your family, and assure that what you have goes to whom you want, when and the way you want, transferring your traditions—not just your net worth.

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Article authored by Curt W. Ferguson and originally published in the Prairie Farmer magazine, December 2005 issue.  See the article on Curt’s web site, click HERE.

For more on this topic check out our article, “Saving the Family Farm.”

Michael Jackson: King of Pop (and Estate Planning?)

Are you tired yet of hearing about the Michael Jackson saga? One thing for sure, the gossip media should have plenty to talk about for quite a while. It turns out Michael did have a Last Will & Testament after all. (Thanks to those who sent me links to good articles on his estate issues.) Despite the circus atmosphere, Michael’s estate situation gives us some reminders about important planning issues:

1. Wills are public. Usually, there are many issues that are much more important to your family than keeping your estate matters secret. But at the same time, do you really want people to see your private info? And with increasing online access to court records, it will be easier and easier for your neighbor or nosy relative to look at your Will in court records without leaving home.

2. Living Trusts are private. A living trust is a good way to keep your info private at your death. And that’s exactly what Michael did. Look at his Will. It is what we call a “pour over will”, meaning his will doesn’t have much in it except instructions to dump assets at his death into what they are calling his “Family Trust” (which is private and will stay private). So all the gory details about who gets what and when they get it are only in that private document, incorporated by reference into his Will. And it seems to me that Michael’s Will actually included more info than necessary. For instance, I usually would not put something in the Will about disinheriting anyone (as he did with is ex-wife). That kind of info can go in your trust to keep it all private.

3. Asset titling is key. We haven’t seen how this part plays out yet. Even though Michael had a living trust, if he didn’t properly title his assets in that trust before his death, then the probate court will have to do it using his will. Without assets organized properly, he will lose part of the benefits of the living trust.

4. Feeding frenzy? Michael’s death is a media frenzy, but also a money frenzy too. Friends, relatives, business associates, will all be scrambling to take financial advantage. Those who are controlling his assets will be approached by all kinds of people with all kinds of ideas and schemes, all designed to get some money from the estate. Marlon Brando’s estate attorney said people came “out of the woodwork making all sorts of claims” after Brando died. At your death, who will be in charge of your estate and who will be at risk for being taken advantage of?

5. Personal items are important. There is a court dispute over 2,000 personal items. Michael’s mom has control of them, but the real executors want them back. The judge told them to try to work it out. I have seen a lot of hurt feelings and disputes over personal items, sometimes of small dollar value. But sometimes the items of small dollar value have huge sentimental and emotional value. What have you done to make sure your personal items don’t cause a dispute later? What have you done to preserve the stories behind items of emotional value?

6. We never know when. We look at Michael and figure he was living a life on the edge that could lead to an early death. But the fact is that none of us know when our time is up. One thing about estate planning – you need to do it when you don’t need it, because when you need it, it’s too late to do it.

Despite some feeling like the topic has been covered way too well, there is even more we can learn from this situation, including how to choose guardians for your children. Check out Part II of this post here.

Protecting Your Family Like an NFL Lineman

The other day I had a chance to speak at the Rotary Club. My topic, like the article “How (and Why) Athletes Go Broke” in the latest issue of Sports Illustrated, was about protecting the money you’ve worked so hard for. There are many ways your spouse, children or grandchildren could end up losing what was so important for you to leave behind. I know you can’t imagine your loved ones blowing your hard earned money (or maybe you can), but sometimes it happens in the blink of an eye. What are some of the risks to an inheritance?

  • Lawsuits The SI article is riddled with stories of lawsuits. Though it may not be something you think about, imagine your spouse, devastated by your recent death, running a red light and causing an accident involving a school bus. In an instant, all that you worked so hard for could be given away by the courts to the injured parties leaving nothing to care for your family in your absence.
  • Divorce One NFL owner was once asked by one of his players what the most dangerous thing to happen to them financially could be. His answer: Divorce. Many players, who marry their hometown sweetheart, can never imagine a divorce in their future. Even if your son has married the sweetest girl in the world, there is no way to see what the future holds. Would you be OK giving half your hard earned money to her if they end up getting divorced a few years after you pass away? It happens regularly when people don’t plan ahead.
  • Remarriage If you die, and your spouse remarries, do you mind if part of the money you left is split with the new spouse, or even later left to the new spouse’s kids? This could either be a gold-digger (or “bimbo” as some of my clients like to say) or a stand up, class-act new spouse. But either way, without planning, there is a risk those assets will end up where you did not intend. Your children could even lose access to the money they would need for college.
  • Wild Spending Lots of quick money means a happy life, right? Well, that’s not what the stats show. Quick money (winning the lottery, getting an inheritance, or multi-million dollar NFL contract) can lead to wild spending, divorce and bankruptcy. If your children end up with large assets at the young age of 20, they could quickly blow it like any upstart professional athlete. If someone isn’t prepared to manage the money, the money will manage them. You’ve worked hard so your kids will be ok without you, but will they really be better off with a large sum of money that has no safeguards?

Nobody likes to think about these difficult issues, but with proper planning these assets can be protected and your loved ones will be protected – even if you can’t be around to do it.