Changing Perceptions, Continued
Last week, we talked about the changing nature of farm families in relation to farming as a business and farming as a way of life. I talked about how each generation since the Great Depression – Baby Boomers, Gen X and Y, etc. – has different perspectives towards farming and towards their own lifestyle choices. We also talked about how mechanization (better machinery) made it easier for children not wanting to be involved in the family farm at a young age to avoid farm work whereas previous generations had no choice.
So, we reach today’s non-farming children and what their attitudes are towards the family farm and what they think is fair and equitable.
The last decade brought unprecedented income from farming and ranching never seen before. Along with this income, farmers and ranchers did a lot of updating of equipment, bought a lot of land, saw their own land soar in value and suddenly a million dollars was not the value of the farm but the operating note for the year. Inflation was rampant in the agri-sector as vendors took advantage of rising incomes to raise their own prices to the farmer/rancher. Costs of operating hit all-time highs.
During this time, the Breadbasket states plus Texas had one of the worst drought cycles since the Great Depression. This drought finally finished about two years ago and since then, as you well know, the value of commodities has dropped and dropped as reports of higher and higher commodities has increased.
We can expect that farmland values will decline in value – especially if the Fed should raise interest rates on loans – which effect seems to impact the agri-sector faster than any other area. We can expect that values of on-the-farm equipment to drop dramatically in the next five years as new replacement machinery will not be bought at anywhere near the rate it has been over the last ten.
In estate planning, we are at the same crossroads as the rest of the farm economy. We have a lot of non-farm heirs who have read about the widely chronicled increasing value of farmland over the past ten years. They have visited their homes and noticed new machinery, new buildings and a different lifestyle for their parents and/or for their sibling who stayed with the family farm. They have read about the advancements in machinery with auto-steer and other methods that have made farm life not quite so labor intensive.
With this in mind, as they are brought in on the estate planning process, there is a lot less empathy with their farming sibling from the non-farming heirs. They’ve seen and heard the difference in family farming over the past decade. More are demanding to know what the value of the family farm is today so that they know what their sibling is receiving in today’s values and, hence, what they will ultimately receive in the future in comparison.
When there is a difference in values of what the farming child will receive, there is a far greater outcry of ‘Foul’ as the numbers sink in. This generation wasn’t told ‘children are to be seen and not heard’ and they are loudly expressing themselves as to what they think is right and wrong in the estate plan.
However, we have to remember, we’ve been through these cycles before and the farmland isn’t worth the value it shows on paper unless it is sold. Mom and Dad have no plans on selling it and the next generation family farmers have no interest in selling it either. If the farming heir does sell it for any reason or transfer it to someone not in the family, we can make certain in our estate planning that all heirs will then share in the value of the family farm and its net value.
We continue to put the estate plans together that keep the family farm business intact for the next generation to use, and if their lives change and if the farm heirs choose not to farm need to sell, then all of the heirs will benefit. But until all of the heirs wish to come back and work on the family farm, take the same risks involved in farming and are willing to take lesser incomes when commodity prices fall like family farmers are, then it’s still imperative the farming child has enough to survive during good times and bad.
“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