Author Archive

BooAdmin

Green Beans

Written by BooAdmin on . Posted in Farm versus Non-Farm

Dear Michael:
 
We have nine kids and we are working on setting up a life estate to protect the farm from if we end up in a nursing home. We have a couple of the kids who are involved in the farm, although raising nine kids didn’t leave us a lot of room for expanding our farm operation, so we don’t have all that much. The problem is the two kids who farm don’t get along and both are making rather angry statements to each other, and even to us, as to how they want to deal with these assets. My husband and I are not in good health at all, and we’ve been arguing over this for two years already. My husband and I are ready to throw up our hands in disgust and let the chips fall where they may. Do you have any suggestions? – End of Our Rope
 
Dear End of the Rope: There’s a tried and tested rule in estate planning that everyone learns sooner or later. ‘No matter how long or how many discussions you have with your children about how your estate is going to be handled upon your death(s), you are NOT going to make everyone one hundred percent happy’. 
 
As harsh as that sounds, it falls under the same category of taking the whole family out to dinner at a restaurant and letting them choose the restaurant. Guess what? You won’t get a decision by everyone that’s going to make everyone happy. 
 
In other words, it’s human nature, and fighting human nature can exhaust and paralyze the process of effective estate planning. I would guess as many as forty percent of the people out there without estate plans – wills, trusts or other up-to-date planning – don’t have this done because they try to make everyone happy. Well, that’s the ultimate ‘cut off your nose to spite your face’ action a family can take.  
 
I’ve had cases – much like yours – where the children kept right on fighting up until their parents went into the nursing home, right up until Medicaid showed up and said they are ineligible for care until they sell down their assets to nothing, and right up until the assets all gone. And they were still fighting. 
 
Sometimes, estate planning can be the ‘green beans’ of life. 
 
By that I mean, when your kids were little, if you’d let them, they’d eat nothing but candy or cereal or whatever they liked and never eat any of the things necessary to stay strong and healthy. You, being a good parent, knew that if your kids didn’t eat their ‘green beans’ or other good fruits and vegetables, your children would die of scurvy – if you let them eat only what they wanted to eat. So… you made them eat their ‘green beans’. 
 
Now, thirty years later, comes the ultimate ‘green beans’ in life you have to tell your children ‘Look, if you don’t find a way to eat your green beans, you’re not getting any dessert!’ 
 
Or, in estate planning terms you’d say ‘Look, this is the way I see how things are going to be fair and I understand you don’t necessarily agree with me. However, here are your options. You and your brother either come up with a workable solution in two week’s time… or we move on to option two, and we are going to split it up between all the kids, share and share alike. So, you two better sit down and eat your green beans right now, or there’s not going to be any dessert, got it?’. 
 
Still acting like five-year-olds two weeks later? 
 
I’d say ‘Okay, you didn’t want to eat your green beans, and now we’re going to divide the estate pie dessert with you, your brother and all of the other kids, share and share alike, so there won’t be a very big slice of pie left over for you. We gave you the chance – you said ‘no, thank you’ – so we did what good parents do – we made the decision we had to. The life estate deed is being filed this coming Friday’. 
 
Then, go on with your life knowing you’ve done the best that could be done. I bet if you look back, you’ve made hundreds – if not thousands – of these decisions with your kids from the time you became a parent – some good, some so-so but all of them still  better than making no decision. Otherwise, scurvy would be a leading killer of children in this country. 
 
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc. 
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917 
Telephone: 701-255-4079
 Fax: 701-255-6106 Toll Free: 1-800-373-4078

Continue Reading

Outdated Advice

Written by BooAdmin on . Posted in Life Estate, Mineral Rights

Dear Michael:
 
My parents had quite a few minerals and when my father died, I received some of these minerals. When my mother died, she left her minerals to my children (all of her grandchildren) but I received a life estate in the minerals. I don’t have to worry about these minerals being included in my estate for tax purposes being as Mom bypassed my for ownership, right? I only get the income and my kids own the minerals. – Passed By On Ownership. 
 
Dear Passed By: I am sure your mother was well-intentioned when she gave the minerals to your children and gave you a life estate in the property. However, IRS has a rule that anything you have the right to receive all the income from under a life estate status will be included in your estate at it’s fair market value at the time of your death for estate tax purposes. 
 
Therefore, when you die, the minerals will be appraised at their market value at that time – which could be a problem if your mineral interests rise in value – just as if you had owned the minerals outright. 
 
In her effort to keep the mineral ownership within her bloodline, Mom may have inadvertently created an estate tax monster. 
 
The same might be true for people who have given mineral away but kept a ‘royalty deed’. Many people got advice a few years ago that’s ultimately turned out to be bad advice in the long run. It wasn’t bad advice at the time, but no one knew how large all of this oil was going to grow into.
 
The really bad thing is when people assume the advice they received in 2005 through 2010 is still viable advice. This is only true for those people who were passed by in the oil boom or had negligible income. 
 
For those people who have income producing wells, they may only be seeing the tip of the iceberg right now. Each well head is capable of multiple legs. The first go-round of drilling was just to make certain there was a hole in the ground for each spacing unit so oil companies wouldn’t have to go through leasing the property all over again. This, for the most part, has been completed. 
 
The next stage is to run multiple legs off of the existing well-heads – with the infrastructure that’s now in place – and draw even more oil with the fracking. 
 
Fracking isn’t like drilling pools, as they might do in Texas or Saudi Arabia. Fracking only goes in one direction, per se, and only so many feet side to side in that direction. Unlike pool drilling, where you eventually drain the pool off of one wellhead, each additional leg in fracking can produce more and more income.
 
What this means is for many people who are using advice from when they only had one leg on their wellhead, they’ve probably got outdated advice – as was the case with your mother. 
 
Don’t worry, there’s a lot of people in the same boat. They thought they’d seen the lawyer once and that should be good enough. 
 
Luckily for you, you thought to inquire. You can use a combination of gifting and discount methods to reduce the future estate tax load. You can use an LLC or an LLP or simply gift your life estate interest in your minerals to your children today. Don’t forget, IRS lifted the limitations on gifting to grandchildren now, so you can also do generation skipping gifts now without the old five thousand dollar limitation. 
 
The future is quite simply this. 
 
Those who have good wellheads now – and good income – are likely to see more and more development on those same wellheads – and with it an almost certainty of paying estate taxes in the future due if you don’t update your planning. Get ahead of the curve for a change and do what’s necessary now before this almost certain growth occurs in the future.  
 
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc. 
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917 
Telephone: 701-255-4079
 Fax: 701-255-6106 
Toll Free: 1-800-373-4078

Continue Reading

Give Thanks for All the Blessings

Written by BooAdmin on . Posted in Transferring Ownership

Dear Michael:
 
We have been blessed over the last few years with good crops, good prices and the ability to go out and improve our farm situation with new machinery and building purchases. Our son has been with us right along and he’s added part ownership in machinery, buildings and the land we’ve added. He’s certainly devoted his life to the family farm. We have two other children and we have some savings and some term life insurance we’d like to leave to these two. We still haven’t put together a will or estate plan since the kids were young? Where do we start? – Blessed. 
 
Dear Blessed: At this time of year, Thanksgiving, it’s good to give thanks for all of the blessings we’ve received in the past decade. We’ve gone from a struggling industry to an agri-business powerhouse. Due to drought conditions across the country, crop prices remained at record highs and, for the most part, we had good to great crops. 
 
In retrospect, this would have been the decade to bring your son even further along in the farm operation. By moving some of the production to his name, and having him pay for the machinery in total, we would have avoided a lot of headaches down the road for him. 
 
With joint ownership of ‘some’ of the machinery and ‘some’ of the buildings, we throw a ‘mixed bag’ into the estate planning process – especially if you should die prior to redoing your estate plan. Nature abhors a vacuum and estate planning abhors a ‘mixed bag’ of ownership. 
 
Machinery is a little easier to deal with as they are mobile units – but you still have to have something in the will as to how your farming child is going to gain possession of the machinery he wants in the event of your death. Perhaps he wants some of the machinery but not all of it. Perhaps he wants all of it. It’s a discussion that needs to be held – and it has to be ‘what if something happened to me today – how would Jr. get the machinery he wants and needs to continue’. 
 
Many people do estate planning from the perspective of ‘Well, when I’m old and retired I won’t own any machinery at that time’. In other words, the project themselves into the future ten to twenty years and do their estate planning from there. 
 
A good estate plan plans on what happens if you die tomorrow, what happens if it’s in two-five years and what happens if it occurs ten to twenty years down the road. 
 
You need to put verbiage in the will today regarding these transitory assets – just in case you are not here – and if these assets have been transferred by the time of your death, then these passages will just be ignored in your will. 
 
By the way, this is normally something we settle upon dad’s death in his will, Putting all the machinery and other transitory assets that Jr.’s going to be using past Dad’s death into Mom’s name just makes her life all that much more miserable. How is she going to know if Jr. trades the tractor, the seeder, the rake, etc? What value should she receive for your ‘joint’ investment into these assets. Back when machinery was one hundred to two hundred thousand dollars in value and falling each year, it wasn’t a big issue. But with the value of used machinery holding and overall values increasing to the hundreds of thousands, this just isn’t a spot Mom is going to feel comfortable handling. 
 
Then you have joint ownership of some of the buildings with Jr. You had better make certain that Jr. has a way to obtain the ownership of the other half when you die. Unlike machinery, any buildings permanently affixed become a part of the land and the deed to the land upon which the buildings sit now passes ownership of the buildings. If Jr. gets a one-third share in the deed to the land, his investment into the buildings is gone. 
 
Again, it’s good to get these issues cleared up upon Dad’s death. 
 
Eighty-five percent of the time, men die before women – and by an average of eight to ten years. That’s eight to ten years of Mom dealing with the repairs on the buildings, the liability of the farmstead, the care, upkeep and maintenance of these structures and – again – not where you should leave her. 
 
Each asset class – machinery, buildings, grain held over, land, livestock – has to be discussed between you, your spouse, and your son as to what happens if something happens to Dad. 
 
Without a plan, it’s likely Mom will be left in the cross-hairs between the child farming and the children not farming. As she ages, she’ll become more and more susceptible to standing up to her children and seeing your wishes through. Right now, you’ve got all the power. When you’re gone, she’s going to be outnumbered and out-gunned. 
 
Give thanks for all of the good things you’ve received in the past decade, but don’t waste these gifts by leaving it up to chance or time to resolve these issues for you. We all know, as good as we’ve had it now, it can get just as bad just as fast if we don’t plan properly. 
 
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc. 
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917 
Telephone: 701-255-4079
Fax: 701-255-6106 
Toll Free: 1-800-373-4078

Continue Reading

Adding Value

Written by BooAdmin on . Posted in Uncategorized

Dear Michael: I have been working on my parent’s farm since I got out of college. At the time I returned, my dad was still using old farming methods and his crop production showed it. I learned in school about no-till farming and other methods of bringing up his crop production. Because of this, the land he owned – and the land that was added since then – has doubled in production and, of course, doubled in value. Actually, it’s gone up fourfold since then. My parents still hem and haw about what to do with their will and I’m still not sure if they even have a will. If they should die now, I’d have to buy out my four brothers and sisters. With the price of land the way it is, I’m not certain I could do that? Was helping them out the worst decision I ever made? – My Own Worst Enemy. 
 
Dear My Own Worst Enemy: The cryptic answer to your question of ‘could I even afford to buy them out?’ is ‘No, you couldn’t’. 
 
In order to buy them out, lenders will require you to have at least a forty-five percent ownership stake in what you own versus what you are buying. In other words, if you are buying one million dollars’ worth of property, you’d better have four hundred and fifty thousand dollars net worth to put on the line with this purchase. 
 
If you are buying out an eighty percent share from your siblings with no offsetting equity, it’s going to be a short visit with your lender. 
 
Many young people fail to see this upcoming disaster looming in the future due to their parents’ inability or unwillingness to deal with this situation. In most cases, because parents don’t really have a handle on what they should be doing, they put it off and wait to see if the answers become clearer down the road. 
 
Some questions they may have are ‘Will you ever get married?’ If you are married ‘Is the woman our son married to invested in the farm’. ‘What happens if they have a divorce?’ ‘Is our son committed to farming the way we are (were) committed to farming?’ ‘If he should die, where does the farm go then?’ 
 
Other questions rolling around are ‘How can we be fair and equitable to the other children in our estate plan?’ Many people today are absolutely frozen waiting to see what land values do in the future. Many believe they will drop. Historically, this would be an unusual event unless we see a repeat of the eighties – eighteen percent interest, crop prices at record lows, embargos, a national fuel crisis, inadequate crop insurance – all rolled into a five year period of time.
 
We are a far, far cry from eighteen percent interest as this was brought on by run-away inflation during the early eighties. It was an unprecedented event and our government handled it poorly by raising interest rates to unbelievable highs. They learned a valuable economic lesson. 
 
Land prices will always be a function of profitability and with crop prices decreasing (inevitably the seven year drought was going to break which occurred through the breadbasket of our country) we will see stabilization of land values across the country. 
 
In your specific case, however, it really doesn’t matter what the FMV of land is or is going to be. It will be whatever your parents will states you will pay for the land – or pay to your siblings. With no will or an old, outdated will, this will be the auction value of the land as an auction is the only true way to establish the value of land on any given day. Unless you have millions of dollars in equity – as will other buyers who will be there have – you’re not even going to make it to the second round of bidding. 
 
Let’s take a lesson from our government. Right now, they are stuck with two very radically different viewpoints refusing to cooperate and run our government efficiently. Stuck in limbo, we all suffer the consequences. 
 
You, stuck in your parent’s limbo, have the same issues and the same dire consequences ahead of you. You should be rewarded for coming back and increasing the value of your parents estate – and being a part of increasing the holdings of the estate with your labor and knowledge. 
 
But if your parents refuse or procrastinate on working with you, their partner in the operation, you better start building your own estate – land, machinery, buildings, and/or livestock – outside your parents estate to make certain you have the equity necessary to buy what you can at the time of their deaths. 
 
Sometimes you’re given a long time to accomplish this – sometimes not. I’ve always said the average farm career is about forty-five years (age twenty to sixty-five – give or take). If you’re now forty, your opportunities for income are now down to twenty-five years and each progressive year without planning, the margin gets thinner and thinner for success. 
 
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc. 
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917 
Telephone: 701-255-4079
 Fax: 701-255-6106 
Toll Free: 1-800-373-4078

Continue Reading

Failing to Plan is a Choice Too!

Written by BooAdmin on . Posted in Uncategorized

Dear Michael:

We are long-time readers and appreciate your opinions on farm and ranch estate planning. It seems like every time we sit down and get serious about putting together a plan or putting things down in writing, for example, a will, something appears about ready to change or has changed and we haven’t had time to see the outcome of these changes. For example, our son just moved back home, but we don’t know if farming is the life for him. So, we just sit on our hands or put it off until another time. Perhaps this isn’t the right thing to do, but what else can we do? – Procrastinating to a Clearer Future.

Dear Procrastination: I looked on Google about famous quotes on ‘procrastination’ to find one that was appropriate and, to my amazement, there are millions of them online. So, although no one seems to find time in their days to finish their work, or planning, in this case, they seem to have the time to think about it. I did find the one: What may be done at any time will be done at no time. ~Scottish Proverb

If there was ever a perfect year for procrastination – and reasons for procrastination – this year would qualify. Rains came early in the planting season and lasted until late June. Then, it started raining at harvest time and every day of rain is two days of waiting for it to dry.

On the other hand, we’ve had 260 traffic fatalities in North Dakota in the past eight months, which is about a two hundred percent increase from six years ago.

Reading the paper lately makes one wonder about all the other weird and, oftentimes not so wonderful stuff occurring in our state since the boom. If I were driving north of Dickinson or west of Minot, it may be appropriate to wear a helmet – while you’re in your car.

When I drive around Bismarck these days, I notice most drivers are doing everything but actually driving the car these days. Close calls used to happen to me once or twice a year – now it’s more like once a week.

In any case, back to your question, planning for any big event seldom has a perfect day to start. If you waited for the perfect person and situation to get married, you likely would never have gotten married. If you had waited for the perfect time to have children, financially, emotionally, etc. you likely wouldn’t have any children. If you waited for the perfect time to acquire the first piece, or second piece or whatever piece of property you’re working on now, you never would have started in farming or ranching.

One of the main reasons people put things off in estate planning is waiting for a clearer picture of the future. You likely didn’t do this when you got married, or had children, or bought into the family farm, or added on to it, etc. but now that it’s time to actually sit down and plan for it, you’re unsure what to do.

The perfect estate plan covers all the ‘what if’s’ of estate planning. ‘What if’ your spouse should die? What things should they be doing? The answers are quite different whether it’s the farming husband who dies and the non-farming wife is left? This is one of the first questions I ask people and about ninety percent of these couples have never had this conversation and you’d be amazed at how differently they think about what they ‘guess’ should happen. You’d swear these are two strangers who just met on the street when you listen to the answers.

Your estate plan should also include ‘what if one of the children should decide to farm?’ Some families have candidates – other’s do not – some have too many.

Answers to these should be worded very carefully. For example, ‘if my farming child has taken over the family farm, and is ‘actively participating’ in farming for a  minimum period of at least five years, then s/he can rent or buy the land from their siblings at such and such a rate or valuation. The terms may be (contract for deed, cash within six months, etc.).

In other words, if we focus on the family farm as a business and have the proper verbiage to meet all and any considerations for the family farm to continue, we’ve just removed a big reason for you not to complete your farm estate planning. We maybe don’t know who or when or how, but we can put the verbiage in there so they can survive.

One thing is certain, if you put nothing in your plan about how the family farm will survive, you fall under the old saying ‘people don’t plan to fail, they just fail to plan’ and fail your family farm will.

It’s a simple question – if you could plan for a successful future or you could choose not to plan and guarantee failure, which would you choose?

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Continue Reading

Dividing the Farm Equitably

Written by BooAdmin on . Posted in Uncategorized

Dear Michael:

We read with some interest about your booklet your developing to help families determine how much of the farm should go to the farming child – their sweat equity in the operation – and what goes, then, to the other children.

We don’t have a current will. In fact, we don’t have a will at all. Will this booklet help us to understand our current situation and where we need to be in the future? How hard it is to fill out? – Back in School?

Dear Back in School? – Let’s just say, for the time being, this booklet will be a patient process. You’ll need to remember what you had before your farm heir started and what you’ve added since that time when s/he participated in the growth of the farm.

We then get into three different equations in the booklet. The first part of the booklet gets into situations – such as yours – where either you have no will or you have an outdated will from when the kids were young. You probably have the old standby ‘everything goes to my spouse and if they pre-decease me, then shared equally between all of my children’.

You use this section to fill in what happens when you die with this type of will – or no will. The farm assets will be divided equally between all of the children and the non-farm assets – such as savings, life insurance, and non-farm real estate – will also be divided equally between all of the children.

The question then asks ‘If your farm heir only receives this amount in farm assets and has to use his or her share of the non-farm assets to buy back the non-farming children’s share of the farm assets from the non-farm assets, what are his or her chances of making it?’ Many people, when they see these numbers, realize it’s impossible for the farming heir to make a go of it.

Oftentimes, I will then see a swing to other side and my clients will say ‘What happens if I give all of the farm assets to our farming child and the non-farming assets to our non-farming children divided equally between them?’

We then have a section to fill out where you can do just that. You put all of the farm assets into the farming child’s name and divide the non-farm assets between the other children.

For some people, they have sufficient non-farm assets to provide for the non-farming children. In other cases, due to the high inflation of farmland and other assets in farming in the past decade, the amount the farming child receives dwarfs the amount the non-farming children receive. Oftentimes, the non-farming children are getting less than five percent of the entire estate while the farm child receives eighty, eighty-five, ninety percent or more of your entire family estate. Most couples would look at this and say ‘That’s not fair to the other children!’

As usual, the answer always lies somewhere in between these two extremes – the farm child getting all of the farm assets or sharing equally with his or her siblings. Now we have the two extremes in black and white – extremes eighty percent of farm families already have in their wills.

In the first section of the booklet, we have some formulas to use such as how many years has your farm child worked with you and does s/he deserve a portion of the total value today, or a portion of the value added since s/he started, or various formulas you’d like to use. You’ll come up with a number as to what you feel the farming heir rightfully earned from his or her participation in the farming operation over the years.

We then have a third box – and this one accounts for the share earned by the farming heir. It takes the total amount of assets – puts the farm assets earned by the farm heir into his or her column – and then you can divide the remaining farm and non-farm assets equally. Some people might find the farm heir needs to prepare to buy out the percentage his siblings receive. You can then play with the formulas to determine the right balance.

The next section is the solution section – whether your farm child uses a contract for deed, outright purchase, rents, etc. We’ll get into that the next article.

The good news is this booklet is almost ready for mail use. The really good news is that it will soon be on our website where you can just log in, put in your farm and non-farm asset values, and it will fill out the rest automatically. The bad news is this on-line version is about two weeks away yet from the time of this article. It should be ready right around Halloween – we hope.

For those of you who like to fill stuff out on the computer and have the computer do the work for you, send us your email at info@greatplainsdiversifiedservices.com and we’ll let you know when we have this functioning. For those who prefer to fill things out by hand and do your own math, either email us at this same address or call and we’ll mail one out to you.

Michael Baron
“Keeping the Family Farm in the Family”
Great Plains Diversified Services
1424 West Century Ave., Suite #208
Bismarck, ND 58503
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Continue Reading 1 Comment

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.

Recent Blog Entries

Get In Touch

Great Plains Diversified Services, Inc.

Address:
1424 W Century Ave Suite 208
Bismarck, North Dakota

Phone:
(701) 255-4079 or (800) 373-4078

Email:
KeeptheFamilyFarm@gmail.com

Hours of Operation: Monday - Friday: 9:00 AM - 5:00 PM

Location