Chris Hayes never thought just one of nine in the next generation would want to return to farm. Or that the one would be a teacher who lacks farming experience. But he wants to see the Nebraska grain operation and feedlot he owns with his two brothers continue into the next generation. What he has learned as part of the estate planning process is that he must be open to outside-the-box ideas about how that can occur.
"Between the three families, there are nine children," says Hayes. "What I didn't anticipate, but learned through recent estate planning discussions, is that my son-in-law Jeff also may be interested. He does not have an ag background, and I had not considered that as a possibility."
Chris, 57, and his two younger brothers Rich and Dan, own Hayes Feed Yard, a C corporation based in Silver Creek, Neb. The farm was established by their father in 1955. Each of the brothers grew up farming, then came back into the operation after college. Their father passed away more than 20 years ago.
"We have always operated with an agreement that if one of us decides to get out or retire, the other two have rights to buy that share," Chris explains. "The problem now, especially with high land values, is what if one of the other two is not interested or can't afford to buy? It would force a sale, and I don't want that. Expansion is on my mind, but I don't want to expand unless I know family will be here and a plan is in place."
Honest family discussions
The brothers began working with Water Street Solutions' legacy planners several months ago to determine what that plan should be, to make sure all three have a sufficient retirement strategy, and that all three families' needs are addressed.
The mediator enabled them to review their goals and have very honest and open discussions with tough questions. “Three owners, each with three children, makes this complex,” Chris says. “You certainly can't construct a plan in a month."
Compounding the challenge is changing federal estate tax rules, he says. Congress has adjusted the tax exemption more than once over the last decade, and plans are in place to lower the tax exemption substantially at the end of 2012. He’s been told that, with current record land values, all farmers should revisit and be prepared to rewrite their estate plans this coming year.
"You have to know your tax liability and that it could change," says Chris.
Curt Ferguson, attorney and owner of The Estate Planning Center, Salem, Ill., understands that frustration. "I approach today's uncertainty by telling farmers to do what they can based on the law as it is today," he says. ”
First determine what a farmer values, and figure out how best to pass it on. "The number one reason to plan your estate is so the right people get the right stuff, to pass on your farm heritage and to protect it, " he says.
"Secondly, few of us die right after we put together a plan,” he continues. “To be effective, monitor and review the estate plan every two years."
For example, most farms have gotten bigger, Ferguson notes, with higher land values, can mean a $2 million estate has grown into a $7 or even $12 million estate during the last few years.
Broader financial planning
Ferguson also encourages farmers to expand the planning process to protect all facets of life. For instance, leaving an estate in a trust that children can access prevents it from being wiped out by a lawsuit or divorce.
"You also should review how assets are titled,” he advises. “Make sure deeds, wills and IRAs align with your plan, because beneficiaries on those documents would supersede your estate plan. Life insurance also should be owned in your own name or in a trust you created.
"Find an estate planning attorney who will educate you on the process first,” Ferguson continues. “You want to know the ins and outs up front. Then your attorney should commit to keeping the plan current."
What to ask your financial advisor
Here are questions to ask your advisor before starting:
- What is your experience with facilitating the transition planning process?
- What are your qualifications as a transition-planning specialist?
- How do you get paid for the service you provide?
- What is your process for guiding families through planning?
- How many families have you worked with to create transition plans?
- What percentage of your work is with farm families?
- How long do you estimate the process will take?
- Which family members need to be involved?
Estate planning checklist
Water Street Solutions, Peoria, Ill., offers these checklists to get started, according to life stage:
In your 20s and 30s:
- Determine where your farm passions lie.
- Attend workshops and programs to develop skills required for future ownership.
- Begin to accumulate appreciating assets.
- Research beginning farmer loans.
- Decide whether you want to return to the family farm or start on your own.
- Explore how government may assist in land transition between generations.
- Start insurance policies for your parents, to allow for growth and offer you the ability to purchase assets from siblings.
- Start conversations with parents and siblings about the future of the farm.
- Ensure parents' long-term care needs are met.
- Build a team of trusted advisors.
In your 40s:
- Build balance sheet strength. Acquire appreciating assets.
- Ensure parents' transition plan is in place.
- Consider your own disability insurance.
- Study the entity structure on your farm and make sure it matches your goals.
- Add to trusted advisors. Remove and replace them as necessary.
In your 50s:
- Plan what the next 10-20 years should this look like.
- Consider what type of legacy you want to leave.
- Prepare family for the transition of farm’s operation and ownership.
- Consider ways to be fair to all children, as opposed to being equal.
- Make your wishes known.
- Put your long-term care insurance in place.