The second week of the Agribusiness Management Program (AMP) Summer Webinar Series featured attorney Polly Dobbs from Dobbs Legal Group. After practicing law in Indianapolis for 12 years, Polly returned home to her family farm with her husband and two children. She is passionate about helping farm families avoid the pitfalls of estate planning by focusing on the efficient transfer of their land, buildings and equipment to the next generation.
As the title of Polly’s presentation indicates, she has encountered plenty of horror stories related to succession planning (or lack thereof) throughout her career and shared a few examples during the webinar. Main takeaways for farm families to keep in mind as they develop a succession plan are to be specific, communicate often and get everything in writing or recorded (if possible). Unfortunately, handshakes mean nothing. Polly went into greater detail on some of the common mistakes she sees when working with farm families.
Taxes aren’t the problem.
Many family farms are scared of death taxes. Estate tax exemptions can provide a false sense of security for farmers because the numbers are so high, and they don’t think they fall into that category. As the value of farmland increases, farmers can be worth more than they think. Tax laws change frequently, so it’s better to plan ahead than rely on the current tax laws. As Polly commented, family farms are destroyed far more often by feuding families than by taxes.
Fair does not mean equal.
Farm families are often concerned about making sure each child receives a fair share of the estate when it’s passed from one generation to the next. Polly cautions that fair does NOT have to mean equal. Your kids are different, so it’s ok to treat them differently. She also raised the point that if your kids are not in business together while you’re alive, they probably shouldn’t be when you’re dead.
Planning in secrecy is a bad idea.
As farm families are thinking about a succession plan, it’s best to plan and tell everybody. Keeping anything a secret can lead to entitlement brewing in the next generation (i.e., they’re already thinking about how they will spend your money). Of course, it’s ok to ask for opinions and input from your children to see what they think. But keep in mind that it is a poll, not a vote. Polly also warns against ‘no contest’ clauses, stating they’re a cop out and still result in a lot of legal fees that could be avoided with proper planning.
Avoid tenants in common.
Equal tenants in common ownership is inviting a family feud. Even someone with a small interest can force an auction or partition action. A better approach when willing land to your children, could be to divide it among them and include a first right of refusal to the others if one decides to sell. Or to put it all into a trust and identify who controls the land.
Be careful with joint ownership.
Including your kids on the title to your land or machinery can cause problems upon your death. Consider transfer on death deed instead to avoid probate administration, complications from divorce or credit issues that could happen with a joint ownership.
Blended families and prenups.
Protecting your land with a marital trust can avoid several scenarios after death when a stepparent is involved. And although it’s not fun to discuss, prenuptial agreements for children in farm families should be a standard part of a succession plan. Additionally, prenups for subsequent marriages in a farmer’s golden years are extremely important. Trusts can help, but they can only provide a certain level of divorce protection.
How to get started.
Getting started with a succession plan for your family can be intimidating but keeping a few things in mind will be helpful.
- It’s not a ‘one size fits’ all solution. Each farm and family will approach things differently, even different generations within the same family (and that’s ok!).
- An accurate personal financial statement is home base. Gathering all your documents is a good place to start.
- Think about how you might want your plan to be structured. You don’t have to know or understand all the legal terms, but you can tell an attorney how you think it would work best, generally speaking.
- Re-evaluate often. Your initial plan should work for right now, but it should also be revisited as things change.