Albert and Judy have three children. They have a farm operation valued somewhere between five and six million dollars. It is a farm operation with no livestock or other means of income. Their youngest son, Kade, has spent the most time with the farm operation while the oldest prefers to come only when needed. They also have a daughter, Julia, who is not involved at all. The oldest son, Bill, is married with two children but the other two are single and in their early twenties. Albert and Judy are fifty-seven and fifty-five respectively. They still have a simple will with everything going to the surviving spouse on first death and divided evenly on the second death.
Goals: Albert and Judy’s goals are to bring their young son, Kade – age twenty-four – into the farming operation full-time and begin the process of transferring their farm business to him while being fair to the other children. They also want to protect the farm from long-term care costs or other health issues they might have.
Possible issues: Kade is only twenty-four and still single. Many children are now waiting to marry until their late twenties or early thirties. One area of concern for me is who is Kade going to marry? Is she going to be happy on the farm? Is she going to be happy in a rural environment? The divorce rate is still hovering at just a little more than fifty percent, so how much property do I want to put into Kade’s name knowing if he has marital problems you might see financial problems for the farm?
Solutions: Albert and Judy have two factors – one, they are approaching retirement age and want to be out of farming by sixty-five or so. Two, they have a young, single son who needs to acquire assets to be successful in farming.
As such, Kade needs to develop assets towards his future career in farming. The easiest place to start in this scenario is with the ‘replacement machinery transfer’. Albert and Judy have to give up some of their rented land to Kade to allow him to make income from the farming operation. However, the income isn’t going to go into other things except back into the farming operation. Every time a piece of equipment needs replacing, Kade takes the income from his land and uses it to replace the old piece.
Now, this doesn’t start with replacing the big four-wheel drive tractor, the air seeder or the sprayer. It begins with replacing grain augers, Bobcats, new bins needed, or other small items that wear out and need to be replaced. Nothing too big to start with but get Kade in the habit of taking his income from farming and putting it back into farming. You did this your entire career and if he’s serious about farming, he’ll do the same.
Back in the day, you felt like you didn’t have a choice about this when you started out. Start training Kade this is how successful farms – or any business, for that matter – makes it over the long-term. Start small and build and build.
The goal is to have Kade own fifty percent of the equipment by your retirement date and the other fifty percent within five years after you retire. If Kade does get married and you see the marriage isn’t working out as well as you hoped, you can always choke this transfer down.
In the meantime, your ‘estate plan’ or new will has to have provisions in it for you to deal with the death of one of the two of you – most notably Albert if he should die. What does your will say about Kade buying the machinery from Judy? Does Judy rent or sell the land to Kade if he is looking stable and successful in life and in farming?
Secondly, we have to have a plan in place for how Kade might buy out his non-farming siblings share someday. If you two both die too soon, we need to park the farm assets in trust and have a trustee who will dole out these farm assets to Kade as you would have had you both been here. What circumstances do you put into the trust where Kade can farm? Does he get credit for rents paid either to you or to the trust, if you both should die? Normally, he’ll need this to build up enough equity to buy out the non-farming siblings.
The year to year plan is to transfer slowly. In the background is your ‘emergency’ plan or estate plan for what happens if one or both of you should die with special emphasis on protecting Judy should something happen to Albert. Your year to year plan should work hand in hand with your ‘emergency’ estate plan.
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Toll Free: 1-800-373-4078