Survey Says! Current State of Farm and Ranch Estate and Succession Planning
Published on Mon, 11/30/2020 - 12:20pm
Survey Says! Current State of Farm and Ranch Estate and Succession Planning.
By Cari Rincker, Esq. of Rincker Law, PLLC
When looking for farm and ranch estate and succession planning solutions with increasingly challenging farm family dynamics, it’s prudent to first look at the data. Rincker Law, PLLC performed a survey sent via email and posted via social media geared for agriculture producers. This article discusses the data from that survey and delves into what this might be on the state of farm and ranch estate and succession planning.
Role in Industry. Results from 58 survey takers were collected via Survey Monkey from July 27 to October 27, 2020. 46.55% of participants were farmer landowners while 1.72% was a tenant farmer. 17.24% identified as both a landlord and tenant farmer. 18.97% noted that they were a farmer with an off-farm job, a familiar scenario in the Rincker farm family. Four participants stated they were agri-business owners while two noted they were an agriculture employee. Remaining 5.17% of survey takers marked “other” for this identifying question.
Age. No questions were sought regarding sex or ethnicity. Interestingly, 46.55% of the survey takers were from 35 to 44, which may be the time period when farm and estate planning becomes of interest for farm and ranch heirs. Few survey takers were less than 35 (with 6.9% between ages 25-34 and one survey taker between ages 18-24). The second largest demographic of the survey takers were between the ages of 45 and 54 (25.86%), again highlighting the interest in this topic as they reach the age that their parents may soon not be able to farm. About 10% were between 55 to 64 with the remaining five survey takers were 65 years of age or older.
Marriage. Nearly 85% of survey takers said they married with 15% answered that they were not married. No questions were asked about the numbers of marriages, deaths of spouses or cohabitation with unmarried persons.
Children. Over one-third (i.e., over 36%) of survey takers said they had two children with approximately 19% noted they had one child. Approximately the same number of participants had three children or no children with 15.52% and 17.24%, respectively. Four participants had four children; two survey takers had five children; remaining one participate had six or more children.
Geographic Area. All participants were in the United States. The majority were from Illinois but survey takers were from coast to coast including New York to California and states in between such as Nebraska, Wyoming, Indiana, Oklahoma, Kansas, Colorado, South Dakota, Nevada, Michigan, Texas, New Mexico, Arizona, New Jersey and Virginia.
As a preliminary matter, there is overlap among the concepts of estate planning, succession planning and business planning. They are each separate ideas with overlap affecting the global picture. Estate planning consists of the legal documents that typically affect a person upon death or incapacity. Succession planning is the game plan on how the family business will pass from one generation to the next. Business planning usually includes a business entity such as a limited liability corporation, corporation, limited partnership, general partnership, etc. Each complements the other two and work together for the estate and succession planning puzzle, unique for each farm and ranch family.
Surprisingly, only 56.14% of the survey takers noted that they had an estate plan. This is bothersome because a higher percentage of participant had a Last Will and Testament; thus, those additional persons either did it themselves, which may or may not be legally enforceable, or they have fired their estate planning lawyer and no longer have a relationship with this person. 14 of survey takers found their lawyer locally while an equal number of participants (also 25% of the total) found their estate planning lawyer from someone they know personally.
On a positive note, 72.7% of survey takers had a Last Will and Testament. No questions were asked about how old the Will was or the last time it was revisited. It is positive that nearly three-fourths of the industry has at least some type of Will in place. On the other hand, 27.59% of the survey takers had no Last Will and Testament. This was surprising since only 85% of the survey takers were less than 34 years of age. This is a simple first step that every adult should have in place, even if they have no children and are unmarried. Without a Last Will and Testament, then the court decides how to allocation the estate under the rules of intestacy in that particular state. Executing a Last Will and Testament is a simple process that allows the decedent to decide how his/her state will pass.
Disappointingly, only 50% of survey takers had a Power of Attorney for Property. Without this, a family member may have to pursue a guardianship costing thousands of dollars in legal expenses if a family member is incapacitated. Drafting a Power of Attorney is a simple legal document that likely costs hundreds of dollars. Powers of Attorneys can also be used while the principal has capacity or for a limited purpose, such as a real estate closing or communications with the Internal Revenue Service.
Not surprisingly, only 27.9% of participants had a trust. This is underutilized in agriculture. Trusts can be an extremely beneficial estate planning tool for farm families because if the trust is funded properly, the farm or ranch can avoid probate. Avoiding probate protects privacy and can reduce legal fees upon death. Another advantage is that the transfer takes place instantaneously vs. waiting for nearly a year or more for probate to be completed. This can be particularly useful to farms that participate in federal farm programs. Nearly all farms or ranches can benefit from a revocable living trust, depending on size.
There are two major types of trust—revocable and irrevocable. When asking the 16 survey takers who had trusts, eleven of them have a revocable trust while four had an irrevocable trust. Irrevocable trusts can be helpful to farm families concerned about Medicaid planning. Three survey takers were unsure, which goes to the education that estate planning lawyers are sometimes not providing to their clients.
It is easy to forget that life insurance is part of the estate planning puzzle. Nearly 90% of participated noted that they had life insurance; however, when asked whether they had ample life insurance to cover the farm, agri-business and personal debt, only 67.39% said they did. More education in agriculture in needed to better inform farmers and ranchers on how life insurance can be used in the larger estate planning picture.
Life insurance is not income taxable, but it is estate taxable. No questions in this survey were asked about this concept but many people are not aware of this nuance.
The interesting part of estate and succession planning is that it should be tailored and modified in according to changing goals. Iowa ag lawyer Pat Dillon uses an analogy of someone juggling different goals; at any one time, only one goal is the highest priority. When asking the survey takers their #1 priority for their estate plan, survey taker had a myriad of responses:
• “To make sure it is done right”
• “Trying to make everyone happy without someone feeling like they got screwed.”
• “Other family feels entitled and having to pay them off.”
• “That our father will never fully retire until he dies and will not have things in order.”
• Fear that I will “miss something” or “forget something”
• “Cost” or “expensive and won’t adequately protect my family”
• “Future in-laws not grasping the whole picture”
• “Time and focus needed to be thorough and include partners’ differing views”
• “That I will mess it up and it will be a nightmare for my son. My ex-husband recently when through a nightmare with his siblings when his mother passed.”
• “Arguing [and] fighting with my siblings”
• “Losing or damaging family relationships”
• “Older family members do not want to talk about unpleasant end life decisions”
• “You have to keep reviewing it to keep fresh and see if changes are needed” or “Keep up to date with changing laws”
• “There is always the potential for confrontation of a child not getting what they think is fair. Fair is not always [equal] and vice versa.”
• “Taxes – still think we did it wrong”
“As one of two kids to the first generation who built this business, I worry that the sibling not interested in the farm will feel empty-handed for inheritance”
• “Arguments between family members” or “misunderstandings”
• “Losing everything our family has worked for – for generations. Being taxed to death that will cause financial damage”
• “No one will cooperate”
• “It is sad that no one from our next generation is interested.”
• “Making decisions now and possibly needing to make changes later.”
To help avoid anxiety of getting it done perfectly the first time around, Rincker Law, PLLC recommends to clients to get a simple estate plan in place immediately and perfect it over time. For example, perhaps step one is a simple Last Will and Testament, Powers of Attorney for Health and Property, and a Burial Directive. Then step two is forming a limited liability company for the land ownership. Step three is later forming a second limited liability company for the farm operating company and then creating a landlord-tenant relationship between the two entities. Step four, when funds allow, may be establishing a revocable living trust and pour over will. Then the estate will be tweaked over time as the farming enterprise has changing goals.
To placate fears on costs, there is an estate plan at every price point. The problem is when clients wish to have a champagne on a beer budget. It is also easy for some in agriculture to be a “penny wise and a pound foolish” when it comes to legal services. It is paramount to find an estate planning attorney that understands the unique dynamics of your farm family and agribusiness. An estate and succession plan should be something that every farm and ranch family should budget and plan for; as stated earlier, it can be done in steps to aid in affordability.
When asking participants their ideal budget for doing a farm/ ranch estate plan, approximately 30% answered “no clue how much is a reasonable budget.” Agriculture lawyers need to be more transparent on pricing with the food and agriculture industry so it is not a mystery and scary for those considering an estate plan. About 20% stated that $1K to $2k was a reasonable budget whereas 20% stated $2K to 4K. 12.5% noted $4K to $6K. Two and three survey takers marked $6K to $8K or $8K or more, respectively. The remaining four participants said $1k or less. The important point here is that there is an estate plan to fit within each of these budgets; it may not be perfect to fulfill the needs of the farm or ranch but it is also not permanent, leaving room for later adjustments.
Regarding the fear with changing laws, some estate planning attorneys offer subscription services or send periodic updates to clients informing them of changes in the law (such as estate tax). This is also why it is recommended that folks visit with their estate planning attorney every few years to revisit their plan.
When asking survey takers what their biggest roadblock is to doing or updating a farm estate plan, the following answers were noted:
• “Time” and “setting aside time to review and update”
• Family members that don’t want anything to change from the last 40 years”
• “Farming seems to always be the priority. On a farm it’s never ending work and projects.”
• “We feel our estate plan is premature and want our parents to put together a plan first which they have not” or “previous generation not wanting to address it”
• “Priorities and distractions”
• “Waiting to see what my kids want to do after college” or “getting my kids through college and into a career”
• “Oldest generation (grandma who is 96 is still living) and she hasn’t passed down estate to the next generation who is ready to retire.”
• “Cooperation from partners”
• “Knowing what to try- a trust? A Business entity” [or all of the above?]
• “Potential familial changes when one partner gets marriage”
• “I don’t really know what an estate plan is”
• “I don’t see value at our age and asset values”
• “Cost” or “…too expensive”
• “Lack of professional assistance”
• “Getting everyone together”
• “…getting everyone on board”
• “Wondering what to do about family members that are shareholders in the ranch but not involved in the operation.
• “Feelings versus what makes good business sense”
• “Spouse paying attention. Children are too young to grasp the levity of it”
Time should never be a roadblock, but oftentimes is. Life is busy, after all. Rincker Law, PLLC recommends to clients to put estate planning in your calendar and treat it like any other deadline in life, such as the deadline to file taxes, a deadline for court, or a deadline for a customer/client. No matter how far off this deadline is in the future, be accountable to this deadline and work backwards with the estate planning attorney. Thus, if you hope to have your estate plan done before March 15th, well in advance of planting season, then ask your estate planning attorney when you should begin. Depending on the complexity of the issues, he or she may say to start one to three months in advance of this deadline. It also may take a month or so to get a retainer appointment with some estate planning lawyers. In working backwards on this form of goal setting, you may need to make your first contact with the lawyer 4 to 6 months in advance of the “deadline.” This is how to get this accomplished in a timely matter. This is also why “emergency estate plans” while someone is on their deathbed are never ideal. Estate plans require careful and thoughtful planning.
Cost should not be a roadblock. As stated earlier, there is an estate plan to fit every budget. Have candid conversations with several estate planning attorneys. Some estate planning attorneys allow for long-term payments plans, either before or after they do the work. This is a requisite part of life that must be planned and budgeted for.
The failure of other family members to have a plan should not be an excuse. If you are over the age of 18 and either are married or have children, or own any property, then you should have an estate plan. Using the failure of older generations to plan properly can no longer be a valid excuse in the agriculture community or the cycle will never break. Work on your estate plan anyway. Invite your parents or grandparents to the conversation. You cannot force them to do the work they need to do but you can lead by example.
Estate plans can be changed at anytime. Have an estate plan even though life feels like it is in flux with children in college. Modify it later, if needed.
For those families that do not know how to properly handle off-farm heirs, welcome to common quagmire of near every multi-generational agriculture business in 2020 as nearly all farms and ranches have the same issue. It is normal for parents to want to treat their children equally; however, as a caveat, equitable does not necessarily mean equal. Thoughtful planning should be done in this regard on the future of the business.
As for not knowing what to do, this is why every farm and ranch family should consult an estate planning attorney knowledgeable in agriculture. Stay away from cookie cutter DIY estate plans, which may or may not be enforceable or fit your needs.
Every farm family knows how difficult it is to get everyone together. For over a decade, Rincker Law, PLLC has recommended to clients to use the holidays as a time to discuss estate and succession plans as it is the most likely time to get everyone in one place. Due to safety concerns surrounding Coronavirus, some farm and ranch families may chose not to get together over the upcoming holiday season; however, the two themes of 2020 are the words “pivot” and “Zoom.” Multi-generational farm families should consider having a virtual pow wow, either around the holidays or thereafter, to host a discussion. Consider having a mediator join the conversation, if needed, to spearhead and facilitate a fruitful discussion. With the use of video technology, there are no longer geographic restrictions on finding an agriculture mediator.
Finally, COVID-19 should not be an excuse. If anything, the silver lining of this pandemic is that many states have promulgated executive orders allowing for virtual notarization and will signing ceremonies, so people can execute their estate plan out of the comfort of their own home with the use of Zoom, GoToMeeting, FaceTime or other video conference platforms. Furthermore, it has only highlighted that life is precious, and terminal, and that people of every age, sex, and socioeconomic are vulnerable to virus that may take their life or a life of a loved one.
Revisiting the Plan
Approximately 30% of survey takers noted that they had revised their estate plan twice. 20.69% of survey takers had only revised their estate plan once with 10.34% revisiting three times. Only four out of 57 participants admitted to revisiting their estate plan 5+ times. Rincker Law, PLLC recommends to clients to review their estate plan every three to five years, or when there is a major life event (e.g., death, divorce, marriage, birth of child). Estate plans are work in progress. Farm and ranch families should have a “starter plan” that is customized, tweaked and improved over time.
Part of reviewing an estate plan is reviewing beneficiary designations. Rincker Law, PLLC recommends to client to review beneficiary designations every two to three years, or whenever there is a major life event (e.g., death, divorce, marriage, child born). It was surprising to see that over 40% of participants have reviewed these designations within the last year. This is higher than expected; part of the uptick may be due to the COVID-19 pandemic, forcing people to double check their beneficiary designations or it may be due to effective education in this area. 21.05% checked these designations within two years while 26.32% checked these designations more than 2 years ago. For those people, no additional data was collected on the length of time since they last reviewed their beneficiary designations. On a positive note, only two survey takers (out of 57) “didn’t know what I was talking about” but nearly 9% never once reviewed this.
It was positive to see that that 75.44% of survey takers had some type of business entity. This was higher than expected but lower than it should be; when diving deeper, some participants who noted they had a business entity may have later selected a sole proprietorship, which no liability shield. Nearly every farm or ranch should consider a business entity that would reduce any personal liability if there is an injury on the property, a food safety concern, or another risk associated with production agriculture. The general partnership or sole proprietorship are ubiquitous with farm families but this does not protect the land or personal assets in a law suit.
For the 43 survey takers who noted they had a business entity, the limited liability company was the most popular choice (21 out of 43). Eight noted they had a corporation with three having a limited partnership. The remaining participants had either a general partnership, a sole proprietorship or marked “Not Applicable.” 22 participants stated that they had multiple business entities, which is a nice plan for most (but not all) farms and ranches.
It was good to see that 51.79% of survey takers had identified an heir interested in taking over the farm/ranch or agri-business; however, this number should improve. 26.7% of survey takers explicitly stated there was no identified heir while 14.29% were not sure. Remaining participants marked “not applicable” for this question. This data highlights the need for farm families to communicate interests and desires in this regard; it also shows that many farms and ranches may have off farm heirs where it is unclear whether they wish to come back to the agriculture enterprise.
Open communication is first step to a successful succession. Somewhat optimistically, 56.9% of participants stated that their agriculture family had open communication about their estate plans. This is far too low and the agriculture community needs to help farm families with this open communication. One option is with the growing use of agriculture mediators to help multi-generational farm families facilitate an open discussion.
The families that have been successful note the following responses for how they were able to accomplish same:
• “Monthly meetings”, “Annual meetings” or “[Regular] meetings;”
• “Just being [up] front about it”, “continue to be straight forward” or “being blunt about it and just talk about it with our son all the time;”
• “My parents have been open about their estate plans.”
• “3rd party mediator;”
• “Face to face family meetings; I learned from [an] uncomfortable sibling experience with my parent’s estate;”
• “Plan a meeting with an attorney and invite the family members. If they don’t attend then they get cut out of the planning;”
• “Having to buy out relatives. Need to have another one with next generation;”
• “A parent who died intestate forced the conversation for us. We have since set up a LLC and Wills, etc.;”
• “We talk about it with our advisor;”
• “We have had several family dinner[s] where we discuss the future of the farm and what is to happen if someone passes away unexpectedly.”
• “Make suggestions, state opinions, and ask questions to stimulate discussions;”
• “Our immediate family decided to be very well-planned and purposeful with our planning after our "source" farm family was secretive and refused to discuss plans and ultimately provided an estate plan that all three children found unfair, that caused mostly avoidable heartache and damaged relationships.”
• “We were forced [to have a conversation] when a family member became disabled, and a family was looking at long-term rehab.
• “In person and use of conf[erence] call for out of town members;”
• “Kids are spread out so we have not had a family meeting but they know the basic plan;”
• “Family meeting over a supper. Discuss the wishes of the grantor and how the grantee should carry them out.”
• “We dug our feet in and insisted on a family plan with our parents, but who knows when it will be reviewed and updated.”
• “My grandparents on the ranch were open about estate planning. My wife’s family also encouraged estate planning.”
• “Our estate plan discussions are most open closely following [agriculture] conferences we attend. However, discussion does not always transfer into action.”
Frustratingly, almost 48% of survey takers admitted that their farm or ranch did not have a succession plan on transferring knowledge and management skills from one generation to the next. Only 16 out of 57 (or 28.07%) have an ascertainable game plan. This is arguably more important than the estate planning documents that needs urgent attention in agriculture education.
In agriculture, prenuptial agreements can oftentimes be considered taboo. However, when used properly, they can also be a prudent component to an estate plan. Many believe that prenuptial agreements are planning for a divorce; instead, consider a prenuptial agreement akin to a life insurance policy for a marriage. After all, one of the Big D’s that harms family farms is Divorce (along with Death and Destruction).
Unfortunately, only 1 survey taker out of 58 noted that a child or heir had a prenuptial agreement. 47.3% did note that this question was not applicable to them but 50% of those who had children who were married admitted that there was no prenuptial agreement. As a firm who handles farm divorces, it is devastating to observe what divorce can do to families, much less an agriculture business. Agriculture educators are urged to provide more education in this area to farm and ranch families so decisions can be made whether a nuptial agreement is best for members of the family unit.
Cari Rincker is the principal attorney at Rincker Law, PLLC, a nationally recognized law firm focusing in food, farm and family. Cari grew up on a Simmental cattle farm in Central Illinois and presently resides on her own small farm outside of Champaign. With offices in both New York and Illinois, Rincker Law, PLLC works with farms and ranches with a myriad of agriculture law issues including estate planning, business law, property law, and family law. She has a podcast with Purdue University Extension called Ag Law Today and has co-authored a book titled FIELD MANUAL: GUIDE FOR NEW YORK FARMERS AND FOOD ENTREPRENEURS. Cari has a passion for
helping those involved in agriculture to protect their businesses for generations to come.
For more information contact:
Cari B. Rincker, Esq.
Licensed in Illinois, New York, New Jersey, Connecticut, Texas, Kentucky and Washington DC 301 N. Neil Street, 4th Floor
Champaign, IL 61820 firstname.lastname@example.org www.rinckerlaw.com Phone (217) 531-2179