Musings from Big Iron

Written by Michael Baron on . Posted in General Estate Planning

Every year, I sit for three days at the Big Iron Show in Fargo in September and each year I write a column about my impressions of the show and the mood of both the attendees and the vendors. Many vendors are also farmers or ranchers so their outlook is also very important.

Big Iron will always hold a special place in my memory. On September 11, 2001, I was driving to the show when a special report came over the radio announcing a small plane had hit the World Trade Center in New York. When I arrived at the show, one of the television stations had a big screen TV in their outdoor booth, and by eleven AM, hundreds of people were gathered around watching in horror as the events unfolded during 9/11. A day that will forever live in infamy for those of us too young to remember Pearl Harbor.

On day one of the show, as has gotten to be with all other day ones of other farm shows – KMOT Ag Expo, KFYR Agri-International, etc. – it’s more like Halloween than it is a farm show. Droves of people show up who have no more interest in farming or ranching than the man in the moon, but they want all the good freebies the vendors are giving away. Many had one or two sacks filled to the brim with everything from pens to calendars to candy. All you could do for the day is stand back, let them grab and hope an occasional person would ask a pertinent estate planning question.

Day two was much better with a lot more ‘active’ farmers in the crowds – although the western farmers and ranchers – since the small crops were finished – outnumbered easterners by possibly eight or ten to one. The eastern farmers were just getting busy with sugar beets and later crops.

I always enjoy day two of the farm show as I get to see all of my farm clients from over the years as they stop by, say hello, and tell me about what has transpired in their lives over the year(s) and how the estate planning we put into place is either working or needs tweaking.

The mood this year was bitter-sweet. Sweet because most of them had an abundant crop year with good quality and little problems with harvesting. Quite a contrast from last year when it rained from mid-August through September in most of the state. Bitter because the crop reports had done their normal fall review and concluded we have too much grain again and the prices dropped. Of course, most of my clients understand the value of their crop is never determined until February through May.

Also, many of them seemed more at peace this year knowing they didn’t have record incomes to get rid of before the end of the year. The last ten years have been so over the top good that most were concerned with getting rid of income prior to the December 31 deadline. Of course, from the vendors standpoint, this wasn’t good as they too have grown and expanded over the past ten years and have come to depend on farmers making a dollar and spending two to grow and expand.

As I walked the aisles of the show, I noticed more and more businesses offering ‘estate planning’ as part of their services. Banks, crop marketing, insurance companies, etc. were now adding ‘estate planning’ to their list of things they sell. If this trend continues, soon Walmart will be doing estate planning

For many people, they don’t care where they get their estate planning done. If they have a sheet of paper with their signature on it saying they are done – in the form of a will or a trust – they think they’ve done their duty to their family. These people have put in minimal effort and they will get minimal results.

Other people understand estate planning goes far beyond numbers and fancy words. It’s finding someone who understands how you feel about your property, how your family particular – or peculiar – situation has to be reflected in your plan, and how you view your future, your family’s future, and what options you have to use to make your plan your plan.

“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

Case #905

Written by Michael Baron on . Posted in Farm versus Non-Farm, General Estate Planning, Transferring Ownership

Brad and Deanna Diggs came to me with the following questions.

“Our son, Brad Jr., has been farming with us for a few years,” Brad told me. “He worked out for a while and then decided he wanted to make a career of farming so he’s been back only two years. He doesn’t own anything yet and we’ve just been paying him wages.”

Deanna said “We have three other children who have also helped us – when they were home – to keep our farm running through the tough years. All of them worked hard on the farm while they were here. We don’t think it’s fair that the other children – at this point – would receive substantially less from our estate!”

Brad said “In a few years or so, maybe Jr. should get more, but as of right now, we don’t think it would be right to give him the farm and the other children nothing. We have a lot of value in land, machinery and some livestock, but we don’t have a lot in savings or retirement funds to give to the non-farming children.”

“Being Jr. is relatively new to this agri-business,” I told them “you might want to consider all parts of your operation separately. If something happens to Brad Sr., what are your plans for the machinery and livestock with Jr.? Is he going to buy it from Deanna, rent with an option to own, lease? How about the cows? Does Jr. like the livestock end of it?”

“Well, he wasn’t too thrilled with cows when he left the farm, but prices being what they are, he’s paying a lot more attention to them now,” said Brad.

“So, he’s understanding more and more of the varied income aspects of the business?” Brad nodded and I continued “So, he’s starting to grow into what the business of farming is all about?” Again Brad nodded in affirmation.

“We don’t mind if the other kids don’t receive any of the cattle or machinery,” Brad said, “but we think all of the children should receive an equal share of the land. We can always set a rate on the land low enough so Jr. can make it.”

“You can set the rent rate low enough so Jr. can make it,” I told Brad and Deanna. “However, if you’re a normal human being – as I’m sure you’re non-farming children are – and you know you own one-quarter of something that’s worth say two million dollars but you’re only receiving one-quarter of the rent amounting to say twelve thousand a year total, what’s your inclination going to be? Keep taking the rent forever at a low rate or cash in and take the half million dollars?”

Deanna said “Well, the girls would likely let Jr. rent for that amount and be happy, but our other son has a tendency to spend more than he makes. I’d worry about him – and I’m not so sure of our son-in-laws either.”

I stated “That’s the problem with moving such a large amount of asset value to people and then expecting them – or forcing them – to take a low return on this value. Sooner or later, either one of the children is going to decide to cash out, or one of them is going to get divorced, or one of them is going to have their spouse tell them to sell, or someone’s going to die and their heirs likely wouldn’t feel bound by the instructions you left in your will!”

“The other side of the issue is this,” I said, “If Jr. rents for his entire life – renting seventy-five percent of the property, he has three issues. One, he can get outvoted by the majority at any time regarding the property. Two, if he doesn’t have at least fifty-five percent ownership in the property he won’t be able to get loans very easily as bankers use this mark of debt to asset ratio. Three, even if he’s able to survive all the previous things, he’s going to have to retire on one-quarter of the assets you now have. That’s a tough row to hoe.”

“Jr. should buy enough second-to-die life insurance on you two so he at least gets a fifty-five percent ratio with his siblings. This will give him majority rule. It will allow him to get land loans, and he will be able to eventually buy out the others. Insurance is expensive but it’s only one one-hundredth of the cost of waiting to buy everyone else out. Get a business plan together with Jr. and then ensure that plan will work. Otherwise, you’re giving your farming son a very, very uncertain future.”

After comparing the insurance costs – lifetime – versus the cost of Jr. buying everyone else out, they agreed it would be a good idea for Jr. to insure his 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

Case #277 – A Path to Follow

Written by Michael Baron on . Posted in General Estate Planning, Transferring Ownership

Cecil and Marge Fusco came to visit with me about their situation. Like many couples, they had a child farming with them for a few years but had no idea how the process needs to unfold.

Cecil said “We have a son who farms with us, newly married with no children but he’s been working with us for some time. We’re just not sure if his wife is truly devoted to the family farm. We’d like to help him out with some things, but we’re unsure how to start.”

Marge chipped in “She’s a very nice girl – she just doesn’t come from a farm background. She’s got a good job but she doesn’t help out at home much. They seem very happy – but you never know!”

“This is just my opinion, Cecil and Marge, but I think the stereotypical farm wife may have gone away. If the two of them are happy and both feel like they are contributing to the overall success of building their life together and having a family together, the fact she doesn’t come out and milk feed the calves shouldn’t be held against her. Who knows – maybe cows scare her, if she didn’t grow up around them!”

“Secondly, if she has a good job and brings income home to be shared between the two of them, it is going to be more beneficial long-term than spending time with the cows. When you start transferring assets – a process you should begin now – your son isn’t always going to have income year to year to pay both you and for his family. Thank God she has the extra income!”

“I suppose that’s true,” Cecil agreed and Marge nodded along with him. “We’re just so used to the way things were. Marge here has been my right-hand woman for years. We thought our boy could use the same. But, we know times can get tough and many women support the men and their families on the farm. So how do we begin transferring things without it causing huge issues on the farm?”

“Start small, Cecil and Marge. If you’ve got a cattle operation, let your son keep some of the replacement cows to start building farm/ranch income. However, along with this new income give him new financial responsibilities as well. Let him pay for a share of the next piece of equipment. Let him use the income to expand the herd – if you’ve got room for it. Give him more income, but make sure he uses this new income to reinvest in his future in agriculture.”

“If a piece of equipment needs replacing, figure out how many calves he’s going to need to pay for a share – or all of it. The more he invests in the farm, the more he’s going to put long-time roots down on your family farm. If you’ve got a grain operation, you can ‘rent’ some of your land – or share rented land with your son – but make certain he reinvests, again, back into the farm.”

“Too many people wait until they are ready to retire to start moving assets. This just leads to huge complications, as we’ve got a couple with a mountain of assets going to a child with no credit history.”

“Last but not least, develop an estate plan that shows your son he is an integral part of the plan – whether you live, whether you die, or whether you get sick for a long time. He has to understand that you have a plan for the future and he needs to know what his place is in this plan should any of these things occur.”

“He also needs to know what happens in the event he takes over and then changes his mind afterwards to the assets he’s received. He’s got to stick with the plan for a period of time or the deals off. This also has to be part of your estate plan.”

You could see the light was coming on in Cecil and Marge’s eyes as they nodded along with me. “I can see we need to take a new, fresh look at everything,” Cecil said. “Maybe we haven’t given our son – or our daughter-in-law – enough of a track to follow or told them our plans for them. We need a day to day, year to year plan as well as a plan in case something happens to one or both of us and we need to share it with them!”

“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

Case #443 – Once Begun

Written by Michael Baron on . Posted in General Estate Planning, Transferring Ownership

Bill and Patty Bridgewater came to see me. Like many farm couples, they had no idea where to start.

Bill said “We’ve just been working at building our farm for so many years we really never paid attention to what would happen to it someday. Most years, we were concerned with farming for another year let alone worrying about a future past that!”

Patty chimed in “During the eighties and nineties, we faced so many different challenges – low prices, high interest rates, no crops – but somehow we made it through to today. But after focusing for so long on keeping going, we’re not sure how to plan to stop. We have absolutely no idea where we go from here.”

This is pretty typical for most of the families who come to visit me for counseling. They’ve been so focused on not going out of business for so long, it feels foreign to do planning for all of the things they’ve built. Many people want to just take a little rest period in between building and planning to stop. However, men are typically sixty-five plus by then and about eighteen percent of them don’t make it through the next five years.

Having absolutely no idea where to go from here is not a great excuse to do nothing and many farm families pay the consequences of not taking some action.

I told Bill and Patty “The first thing we need to do is quantify what you have today. We have an easy to fill out Confidential Survey (click here for link) that lists everything from land to machinery to savings and retirement accounts.”

Continuing on “Now, when you fill out the land value section, there’s going to be three values you can put down. There’s the value your banker thinks it should be, there’s the value you think it should be and then there’s the value of land sold close by you in auction recently. These are going to be widely varying numbers and we can talk about what the value really is.”

“The next item, Bill and Patty, is a simple question. Is someone in your family farming now or have a desire to farm or has everyone gone on to different careers that do not involve farming and no one in your lineage will ever farm?”

Patty said “Our youngest, Sam, has always said he wanted to try farming, but he and his dad could never work together. Perhaps if Bill were ‘retired,’ Sam would be interested in coming back.”

Bill, with a wistful look on his face said “You know, when times were hard, I had to be hard too. I might have, just by my attitude, chased one or more of the kids off the place because I didn’t want them to go through what I was going through. I might have done too good of a job at it!” he said ruefully.

I explained to Bill and Mary “We are all different people at different times in our life. I don’t feel the same way, I don’t think the same way, and I don’t have the attitudes I did as when I was twenty-five or thirty-five or forty-five. I have evolved, changed, learned, learned not to, and so forth throughout my life. I am not the same person I was ten years ago, twenty years ago, etc.”

“The same is true for you, Bill and Mary, and the same will be true for Sam. We don’t know exactly when Sam will get the option to farm. We don’t know what Sam will be facing at that point of his life. Maybe he’ll be ready, maybe he’ll want to stay where he’s at because of what he feels and/or faces at the time, what his wife and children think and these attitudes all change as time passes. The twenty-five year old Sam is going to be different from the thirty or forty-year old Sam.”

“However, if you want Sam to have the ‘option’ to farm, we have to build that into your estate plan now. We have to have some verbiage whereby he can buy the machinery, rent the land or buy the land or somehow acquire this business either from you while you’re alive or from his siblings should you die. If we don’t have the ‘option’ built in, he’ll never be able to farm just inheriting his ‘share’ of the land and be at the mercy of his sibling’s wants and desires.”

“You’ve gone through phases and your estate planning has to keep up with those ‘phases’ as well – just like you do with your crop plantings, new farm practices, and evolution of your farm business. Like everything else, taking the first step is the hardest and things always get easier. To quote ‘A journey once begun is half done’ so just start somewhere.”

“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

Case #431

Written by Michael Baron on . Posted in Farm versus Non-Farm, General Estate Planning, Transferring Ownership

John and Jill came to me to tell me what they had thought about in their estate planning process and to get my opinion on their thoughts.

“We have a son who is farming with us for the past five years. He’s single and doesn’t have a girlfriend. We want him to have the machinery and the building site but the remainder of the farmland will be split between him and his two sisters” said John. “The two girls are married and have children and we don’t want them left out” he continued. “One of their boys even comes out to the farm – even though he’s only four – and sits on my lap while I do rounds in the field.”

“Our land is valued at close to four million dollars and we just don’t feel it’s right that all of this land goes to our son, Rocky” Jill explained. “Our girls should receive their fair share of the farmland and be able to pass it down to their kids.”

In my experience, this is a pretty common fate for unmarried children working on the farm versus non-farming children who are giving their children grandchildren – especially grandchildren who show an interest in the farm at an early age.

Sometimes, parents and grandparents can get so wrapped up in the involvement or non-involvement of their children and grandchildren, they fail to see the normal business rules each business needs to follow in order to succeed. If the land were split evenly between all of the children, I can guarantee Rocky will be out of business in under ten years’ time.

Why? Because it takes about five to ten years for the non-farming children to forget the promises to their parents that they would never sell the land, they will always permit their brother to use the land, and to find something new in their lives whereby selling the land at outrageous prices will more than pay for this new dream. It’s like dangling a honey bee nest over their heads and telling them to take the drips coming down. But as soon as the bees leave the nest, you know one of those children is going to be climbing up that tree to grab the whole honey comb.

And that someone could be the young man on the farm, Rocky! What happens if he finds someone to spend his life with and her ultimatum is “I’m not living on a farm”?

There’s a lot of primal instincts brewing in any estate planning situation. The grandparents want to see their farm legacy carried forward for generations to come. They see their son not producing heirs nor any near future possibilities. One of the other grandchildren is showing a huge interest – but he’s four, so….who knows? We have to balance these primal instincts with good business practices or everyone loses.

But what happens when those instincts lead one to a bad estate plan where no one wins? Splitting the land three ways and hoping the son can make a go of it is not going to work as he needs at least fifty percent of the land in his name to make it work.

In this estate plan, there is much to be considered. How to make a viable estate plan and giving the estate its best chance of survival?

We need a plan for what happens if the son stays in farming, gets married, and has heirs of his own. If this occurs, then we have to have a way for him to rent or purchase the land from his sisters for his farming career at a rate he can survive.

Are we going to put the land into trust and let the son farm it until he is finished and then give the third generation an option to farm if their four-year old interest turns into a lifetime passion? If the son never marries, will we allow this grandchild to enter the farming operation? If the son leaves the operation after Dad and Mom’s death, does the grandchild have the right to step into it with the same terms that the son had?

Lots and lots of questions to be answered – as is the case with every estate plan. Have you got all of your ‘what if’s’ addressed?

“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

Case #303

Written by Michael Baron on . Posted in Asset Protection, General Estate Planning, Trusts

Bill and Josie Welch came to me with some interesting questions in their estate planning.

“All of our children have left the farm and now we are renting the land out. However, we have some concerns about how the children will handle the land upon our death” said Bill.

“It’s not just our kids we worry about, but some of their spouses weren’t raised on the land like our children were, and we worry what happens if one of our children dies and leaves the land to their spouse, or gets divorced. What happens then?” Josie asked.

This exact situation arises in every single estate planning case when you have married children – whether they are on the farm or not. It is also the most overlooked aspect of estate planning.

First of all, one has to understand the laws regarding marriage and inheritances. In most states, property owned by one spouse is deemed to be owned by both of them in some part. This would include any inheritances received by either spouse.

The codified law of most states says that upon death or dissolution of the marriage, both partners are entitled to fifty percent of the entirety of the net estate value – even if one of the spouses states in their will they’d like to see the property they inherited from their parents pass to their children rather than to their spouse. The surviving spouse still has marital rights and can claim fifty percent of the decedent spouse’s estate.

Even if the surviving spouse does let the property pass to the children, if the children are minors, the surviving spouse would be their guardian and, as such, still in charge of the property until the children turn age eighteen. In essence, still under his or her control and could be sold, changed or titled differently if they chose to do so as financial guardian.

“I trust my son-in-laws and daughter-in-laws” said Josie. “I think they would do what’s best for the children.”

I always nod my head and agree with them “Of course, you trust your in-laws – they’re the parents of your grandchildren. However, imagine for one second your child is gone and now your in-law comes home with a new husband or wife. Knowing what you know about marital rights, do you realize their new spouse now has the same rights as they once did? That they now own fifty percent of the estate you left behind for your family?”

Now the lights start coming on in Grandpa and Grandma’s eyes when they understand the implications of how property passes from generation to generation and how the act of marriage can divide that property instantly.

“So how do we protect the property from our in-laws – not that we don’t love them – but we don’t want to see our farm get divvied up this way when we die” said Josie.

“I’ve seen other people use either a testamentary trust or an irrevocable trust with a life estate deed” I replied. “As I understand it, the testamentary trust is put into your will so that upon your death, instead of the property passing directly to your children, it goes to a trust created by your will. This trust does not exist until you die or both of you die and only then comes into existence. You can have the property held until your children reach the ages where they are past having divorces, or still have minor children – say age fifty or fifty-five.”

“In other cases, where people want to have their property protected during their lifetimes, I’ve seen where they set up an irrevocable trust today – only with a twist. The irrevocable trust is created today but only to hold the residual deed while Mom and Dad still keep a life estate interest in the property. This qualifies for the five year look back period. Upon their deaths, the property rights – income and use – are passed to the trust and subject to the same terms as the aforementioned testamentary trust.”

“In other words, the only way to truly protect your property from what may or may not happen in your children’s lives is to put it away into a safe place until they are of the age to manage, own and control the property.”
“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

Case #428

Written by Michael Baron on . Posted in General Estate Planning, Long-Term Care, Power of Attorney

Kevin and Nancy had decided to return to Kevin’s family farm some twenty years ago. Five years ago, Kevin’s mother, Rona, had passed on after a long and difficult sickness. This left Kevin and Nancy to deal with Kevin’s father, Albert, the family patriarch, and still owner of the land.

Over the years and especially since Rona’s death, Kevin and Nancy have approached Albert about what his plans were for the eventual dispensation of the land. Albert had answered ‘I think I know what I want to do, but I just haven’t put this down on paper yet.’ When questioned what his thoughts were, Albert would always say ‘You’ll find out when the time is right.’

Albert’s mental health has started to decline a bit. He’s still very sharp to talk to, but Kevin and Nancy have noticed strange things about his behavior.

Kevin said “Albert tends to repeat the same stories over and over again. Every new person he meets gets the same stories verbatim. He also repeats things he’s told to us as if it were the first time. He’s gotten more reclusive and shut away from everyday activities and he seems to get more and more suspicious of the motives of people assisting him – even me!”

Over the years, I have had many people come to me who’s mental cognizance has been diminished. Some of the warning signs are repeating oneself, inability to adapt to different thinking, not making obvious choices out of fear or suspicion, etc. When this person starts to understand they cannot function in normal society and becomes reclusive or withdrawn from the world, then you know the person’s mental capacities are getting much worse.

Some of the reasons for this cognitive impairment might be Alzheimers, dementia, or – for many people – small strokes occurring.

Alzheimer’s is a fatal disease as first it attacks brain cells controlling memory and day to day function but eventually it attacks the brains cells controlling vital functions and organs – such as the heart or lungs. Dementia is a gentler form of Alzheimer’s but perhaps more devastating as it too attacks the memory of a given person but the person’s overall health is unaffected. These are people who will require long-term care for a long time.

Small strokes are characterized more by sudden changes in personality or behavior. One day, the person can pronounce a word correctly, the next day they don’t pronounce it correctly and they don’t notice the difference. Or small changes in personality such as sudden suspicions of people or inability to make small decisions – decisions they made easily not that long ago. Small strokes can cause sudden minor changes to the person and to their personality. Of course, these small strokes can and normally do lead to major disabling strokes someday.

Too many times people bring their parents in to me and say “We can’t get them to do this or that towards planning their estate” and after a short conversation with the parents, I discover one or both of them is stuck on an idea – normally an idea from the past – or they repeat themselves over and over again or cannot make the smallest of decisions. At that point, I realize what I am dealing with and I need to change my communication methods.

I need to be able to get them to talk about things and bring them to a new conclusion about what they are ‘stuck’ on in not doing their estate planning. Usually, this is done with repetitive affirmations of their goals until it’s repeated enough times the goal starts to become part of their thinking process. You have to have patience, patience, patience when reaffirming these thoughts and ideas and make certain they understand eventually this idea was their own and has now become part of their psyche.

Even so, I’ve had people who have gone far, far along in the planning process who suddenly withdraw, treat me with suspicion as if they’d never met me before even though we have had numerous meetings, and crawl into their turtle shell. For some, it’s too late.

At this point, we hope there is a power of attorney in effect and it’s time to call a family pow-wow and come up with a plan for Dad and/or Mom’s care and the distribution of the estate. As long as the whole family is involved, the POA will act in everyone’s input and best interest. The POA can make changes in ownership of the land, setting up bank accounts, etc. but does not have the power to write a will for the parents.

“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

Case #221

Written by Michael Baron on . Posted in General Estate Planning, Life Estate, Long-Term Care, Planning Documents

Emil and Diana Dewald came to see me in 1998 – almost twenty years ago. Like most people, Emil and Diana had no clear plan for their family farm when they first came in other than they wanted to make certain their son, Jeff, got the opportunity to farm.

“The other children certainly helped” said Diana “But Jeff is the one who has stayed with us. His dream is to run the family farm and turn it into an organic farm as we don’t have a lot of land and that’s his best chance of profit”.

Emil said “We’d like to design something whereby if Jeff stays with us on the family farm, he would have to pay less and less to the other children for their share of the land. I think it would be fair if he got a percentage of the family farm for each year he continues to work with us!”

After much discussion with Emil, Diana and Jeff, they came to an agreement that Jeff would receive a reduced price on the farm for every year he stayed with the family farm. It was one of the first ‘years of service’ estate plans I had ever worked on and still remains a stable of what I do today. We took it to an attorney and had him draft it into a will.

Jeff came to me later and told me “Health issues have became a concern for Dad and Mom (Emil and Diana) and we need to do something more to protect the land”.

The will then morphed into a life estate deed to protect the property from possible long-term care. However, the provisions on the original will stayed with the life estate deed and all the children agreed to those provisions by signing they understood there were conditions, as per the attorney’s instructions.

Diana’s health took a sudden turn for the worst and she died leaving Emil by himself. Unbeknownst to many people was that Diana was helping Emil who had begun showing signs of dementia.

After Diana’s death, Jeff and his wife Janet and the rest of the family tried to help Emil as best as they could. For a time they were able to take care of him at home but eventually Emil needed to enter a long-term care facility.

Because Jeff had stayed on top of the ongoing process of estate planning, the long-term care costs did not cause the loss of the family farm. Jeff was constantly checking and calling to make certain things had been done right and understood the concept ‘estate planning is a journey – not a one-time thing’.

As situations changed and evolved, Jeff made certain he – and his parent’s estate plan – changed and evolved with it.

Emil lived for a few years in the long-term care facility and Jeff spent a lot of time dealing with both the facility and Medicaid to make certain Emil received the best possible care. He had both power of attorney and power of attorney for health care for both of his parents and these papers proved invaluable in the process of taking care of his parents.

Many people overlook the fact their power of attorney for financial and for health care needs to be done and updated as needed so the best possible candidates are in position to help when time comes.

Emil died and Jeff – who had always insured that he would be able to buy out his siblings – was able to do just that. His dream of turning the family farm into an organic farm has also been realized as he finally owned the land in its entirety and was able to move forward the way he had hoped.

Jeff Dewald did everything right through a very difficult time period with his parents and the farm economy. He stuck with it through more down times than up but his determination and perseverance paid off. Unfortunately, at the time he was successful in reaching his goals, God had another plan for him and I write this with a sad heart. Jeff died last week of esophageal cancer at the age of fifty-four.

“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

The Three Elements of a Good Farm Estate Plan

Written by Michael Baron on . Posted in Asset Protection, General Estate Planning, Long-Term Care

Every estate plan should cover three elements when it comes to farm estate planning – Who, What, and How.

  • WHO is going to receive your estate upon your death?
  • WHAT are your heirs going to do with your estate after they receive it?
  • HOW do we protect the property until we die?

WHO: The first element is the most basic. Many people assume that once they’ve written a will or given instructions, this covers the first element: Who will get their estate upon death? The word ‘who’ has gotten to be a very complex word today, with children married, divorced, remarried, children, stepchildren, adopted children.

Classifying your heirs is an important step of deciding who will share in your estate upon your death. Today’s blended families provide a lot of interesting discussion as to who is included and who should not be included. Many people are horrified to find their children’s ex-spouses can become heirs.

The worst thing you can do is not mention a legal heir to the estate. If you want someone specifically left out – mention them – and state you don’t want them to receive anything plainly in your will. This may be, for example, ex-spouses and/or spouses or perhaps stepchildren of your children. Most wills are not written explicitly enough to exclude unwanted heirs.

WHAT: The second element gets a little more complex. What are you going to put into your estate plan to make certain a child on the farm can continue to farm? What’s going to stop a majority of the children from selling the land off? What are the children supposed to do if there is a conflict between heirs? They need rules as to what’s going to happen and how they’ll get along with each other.

If you have a farming child and you don’t have a very, very specific plan as to how the farm business will continue past your death, there is a sixty-seven percent chance the business will not survive. Include your farming child and other children in this process so they understand why things need to be written the way they are in your will.

Once everyone is on the same page, life goes a lot easier. Farming children know what to expect, non-farming children know what to expect – and they can settle differences while you are still alive.

People who don’t have farming children still need a set of rules in the will for the children to abide by upon their death. You have to cover what happens when the children have joint ownership of a very expensive asset and how they can leave or not leave this joint ownership with their siblings. This occurrence is inevitable – it’s not a question of ‘Will it happen?’ The only question is ‘What happens when it happens?’ Have rules in your will as to ‘what’ happens.

HOW: The third element is perhaps the most important and often the most overlooked. How to protect the property until we die?

Lifespans keep increasing, health care gets better, people are living longer – however, the living live with more and more risk of needing care. The diseases and impairments that used to kill people now only disable them. Forty-three percent of all people will require long-term care. That’s almost a four hundred percent increase in just the past twenty years.

Few people realize that the cost of long-term care has risen dramatically. The average of three thousand a month ten years ago is now more than ten thousand a month. More serious cases – such as Alzheimer’s, dementia, or stroke – are ten to fifteen thousand dollars per month.

In the meantime, government assistance and welfare programs have gotten more and more restrictive in paying for these costs. Medicare now determines that if the care given isn’t ‘restorative care’ they will no longer pay the costs. Under this definition, if you’re not being restored to your former self, Medicare isn’t going to pay the costs of care.

Make certain your estate plan covers the WHO, the WHAT and the HOW. If not, failing to plan for all three or forgetting any one of these is exposing your lifetime’s work to chance.

“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

Case #1434

Written by Michael Baron on . Posted in Farm versus Non-Farm, General Estate Planning, Transferring Ownership

Don and Jenna have a family farm operation. One of their children is interested in the farm but is not an active participant. Their son, John, helps when he can and also farms a few quarters on his own with the help of his dad, Don, doing the majority of the heavy lifting. There are two other siblings, Rich and Shannon, who do not farm and haven’t been involved since they left for college.

Facts: Over the last ten years, the farmland has appreciated greatly – being positioned in the middle of many large producers who are committed to growing their operation. As a whole, the operation is not a huge income producer however – being half livestock and half grain operation and some hilly, rocky land in the pastures. The value of the land to the neighbors is far higher than the income value of the business located upon it.

John has come to them with a proposal. Upon the second death of Don and Jenna, he would like to buy out his siblings – if he can get the land for fifty percent of its current market value – or a true value based on the income produced by the land. If the appraised price should be lower than this value set, then John would have the option of taking the lower value. In addition, he would receive the machinery and any livestock. Currently, John has a good job, with better than average income, and his wife does not want to live in the country.

The Issues: With John not being in farming full-time, we don’t know how this is going to play out down the road. If John should be given the option to buy out his non-farming siblings, who’s to say what happens if John decides not to farm – after his parent’s deaths – and he decides to sell the property? I’ve always thought about this and thought ‘Gee, if my sibling got the farm for half-price and then resold it, I’d be angry!’

As such, many of my clients put wording into their wills stating ‘Farming child can buy the property for X price (fifty percent of appraised, a set price, or some other value set in the will) and if s/he re-sells the property within (ten years, fifteen years or whatever the parents decide) then the proceeds of the sale – over and above the purchase price – would be split between all the children.

By doing this, if the child resold, died and left the farm to a spouse who sold, or to heirs who sold within the prescribed time, then there would be equity in the estate plan. This works well with children who’ve spent their lives working with Dad and Mom on the farm.

In this case, it was a bit different from your average because John worked on the farm – but he also had a good job off the farm and was receiving more income from off the farm than he could farming. So, in this case, the question was maybe John would buy the farm at the lower price and he would rent the place out to the neighbors while working at his other job. Sure, he might keep doing his two quarters he’s doing now, but would he really leave his job to farm full-time? And if he wasn’t going to farm full-time, was it right to the other children he got to buy this asset for less than FMV, who could have also ‘farmed’ part-time if they rented some out and custom farmed the rest?

At what point do we draw the line and say ‘If you’re going to farm, yes, we’d like to give you a break on the family farm land from the kids who don’t farm’ and ‘Well, any of the kids would be happy to get these assets – as well as to their children’s estates – if this land is treated as merely an investment/return vehicle’. How much time does a child have to be on the farm, get their living from the farm, how much of an investment they make into the farm business before we can give them a break on the land?

Secondly, how many different conditions do we put on the land after our death(s) to our child who paid less than FMV to the siblings (such as the aforementioned re-sell, repay the other siblings clause) and how can I make them enforceable?

If the other children come back to visit and find their brother hasn’t visited the land in five years, should they feel angry about giving him such a break on the land? If the brother dies and leaves it to his wife and children and they sell it to the highest bidder, would the other children have a right to come in and claim some share? If the entire farm – or even a majority of the farm – is custom farmed by the brother – something any one of the children could have done – would the other siblings be angry being cut out for less than FMV on the land?

When we used to discuss farms in the eighties and nineties, we’d talk tens of thousands of dollars, believe it or not, farm families got along pretty good.
Now that just about every single farmer, rancher or ag retiree has to put that word ‘millions’ into their net worth statement, we’re starting to talk about serious, serious attention being paid to the estate plan and how it plays out for all the heirs. Heirs may have passed on a few hundred thousand here and there, but the word ‘million’ kind of perks their interest quite like no other word before. And why not? This is not just lifetime changing money – this is generation changing money! Kids, grandkids, great grandkids could all benefit from this kind of money!

In any case, if you were wondering what the answer to the above questions are, the answer is you’ll need to talk to a highly qualified farm estate specialist – one who is willing to wade through all of these questions first with you, then with your children – and come up with the best answer. If you don’t know of anyone, call our office and we’ll be happy to give you our list of names.

“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

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.