What is in this article?:
- A Man, A Farm, A Plan | Farmers: If Youâ€™re Nearing Retirement Age, Get a Transition Plan in Place Now
- Transition tips:
Need to make supper tonight? The cookbook A Man, A Can, A Plan has got you covered. Need to make a retirement or farm-transition plan? Well, you’re on your own. There may not be a nice, simplified, step-by-step book available to help you, but there are many law firms and Extension agents ready to give advice and time to help you plan for transitioning your livelihood.
“Farmers take a lot of pride in the land and most of them do care what happens,” says Chad Miner, attorney at Miner & Lemon LLP, Warsaw, IN. “Estate planning is a person’s opportunity to have a say in what’s going to happen after he’s gone.
“People often say they don’t have a lot of assets right now, or that they don’t want to spend a lot of money,” Miner says. “It’s still worthwhile to do a simple will and include powers of attorney. Having done that you’re much better off than if you’ve done nothing.”
He also suggests using a law office that has specific experience in farm-transition planning for those tasks.
“You need someone who understands the various rules and regulations that govern agribusiness,” says Miner. “If a will isn’t done correctly, it’s simply invalid. If an operation is relatively simple, the cost and time commitment are likely to be relatively small. If it’s more complicated, you definitely want the help from a professional who deals with these things on a daily basis and won’t overlook the important issues.”
Tax planning is one of those big issues.
“You have two issues going on as far as taxes: federal estate tax and state inheritance tax,” Miner says. “It’s important to take both into consideration, even though in 2010 there is no federal estate tax, and there are some states that don’t have the inheritance tax. Each person has up to a certain amount of value they can transfer at death before federal estate tax must be paid. If done correctly, a husband and wife should be able to transfer that combined amount.
“When the tax comes back in 2011, each person can pass up to $1 million to a successor without penalty,” he says. “If there’s no plan in place, and the husband dies, everything goes to the spouse and he misses out on the $1 million he could have passed along. Then when the spouse dies, she only gets to pass along her $1 million. A plan can be set up so that both spouses can take advantage of passing along the $1 million each.”
So, make sure there’s a plan in place to transfer assets and value to whomever will be taking over the estate. Whatever that plan, be sure to communicate it to all parties involved.
“Communicate and make sure all parties understand what the plan will be,” says Dave Goeller, University of Nebraska-Lincoln. “That includes informing non-farm heirs of expectations or plans about who will be farming. If the younger generation thinks the farm will be theirs and the older generation is planning to divide it among the kids, there is a great discrepancy.”
If you’re going to transition the farm to an heir or farmhand, Goeller recommends a transition plan that not only gets things on paper, but also teaches and shows the next generation the ins and outs of that particular farm.
“The first decision is on who will be the successor,” he says. “Then it’s best to have a testing phase of one to two years. That phase isn’t really a commitment to the successor, but more trying out the situation to work out the details and see if this will work in the long run. If it’s a parent-child situation, it turns into more than that by adding a business relationship.”
The next phase is where the commitment is made to establish the younger generation.
“In the next phase you look at all the different parts of the business: income, labor, management and ownership. The successor can be mentored and taught as the transition moves along,” he says.
With a solid transition plan, you have a successor who knows how the farm works and you have a retiring farmer who knows his land will be put to good use.
“By not planning, we end up not having someone in place and no skills transferred,” says Goeller. “They won’t know how to operate the business; they don’t teach that in college.”
With tax planning and a plan for the land, transitioning the farm to the next generation will be that much easier.
“It’s never too soon to come in (to attorney’s office) because what we can create is adaptable,” says Miner. “Everything can be revisited.”