We’d like to visit

Written by Michael Baron on . Posted in Uncategorized

We are doing an informal survey of all of our clients we’ve done business with over the past thirty some years.

Over the years, we have talked to well over fifteen hundred different families and their situations and came up with options for their estate planning needs. We’d like to talk to them about how our planning helped them, who is running the farm today, and has this next generation planned for the future by completing good estate planning.

As you can imagine, my planning experience spans four decades – the eighties, nineties, two thousands and now this decade. As such, I’ve worked with children of people who survived the Great Depression. I’ve worked with families before, during and after the eighties onslaught and the nineties when it was considered ‘child abuse’ to give your child the farm.

Each generation seems to have their own signature.

Children of the Great Depression were infamous for doing planning but not telling anyone what they had done or how it was completed. Their children were told to mind their own business. They were told, “You’ll find out when we die” – and their parents kept their word. Many couples had no wills as they trusted no one to help them because they thought they’d be taken advantage of. Most farm children were entirely shocked at the plans – or lack thereof – their parents had put together. This was the ‘radio’ generation and most people received information from newspaper and radio.

During the eighties and nineties, attitudes began to shift.

Gradually, more and more parents shared with their children what their thoughts were for the future and how they were going to implement this in their wills and other documents. Most importantly, how this would work out for the farming child. ‘Equal is not equitable’ became popular in farm and ranch estate planning as parents began to recognize the ‘sweat equity’ of a child who stuck with the farm operation versus the other children who did not.

This was the television generation. They received information by what they heard on radio and TV, but also by attending meetings, researching in papers available, and talking (socializing) with other farmers and ranchers.

The past ten to fifteen years has brought about the ‘smart phone’ generation. Machinery has grown larger and far more complex, needing more technology to work efficiently. Along with efficiency rising, so too have the costs of land as more land can be operated more profitably.

As profits grow, so do land values and the need to have someone committed to keeping up with the technology education necessary. Much of the information this generation receives is via smart phones and through internet connections of one sort or another.

As information has moved to tech media, fewer and fewer young farmers and ranchers are attending meetings to learn new ideas, new methods of improving practices, unlike the eighties and nineties group. Today, when they need information, ‘Google it’ is the quick answer.

Lost in this transition of education from the ‘Great Depression radio generation’ to the ‘smart phone’ is the ability to meet face to face, communicate openly with other people and to openly express your desires and needs.

It’s hard to do any of that by text, Skype, Gmail, etc. This generation is glued to their cellphones and the panacea of information. Yet, they are inundated with advertisers from all directions. This leads to confusion – ‘who is right, who is wrong??’ When confusion reigns, indecision follows.

Estate planning requires meeting face to face and having someone understand you and your desires and needs. However, this generation has done less estate planning than the ‘radio generation’ of the Great Depression – a major step backwards. Does this mean we will repeat the one generation grows value, the next generation enjoys it, and the third generation loses it?

We’d like to visit with our old clients and new to see what their thoughts are and we’ll post our results.

“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

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

The Crucible of Changing Times – Case #2381

Written by Michael Baron on . Posted in Uncategorized

John and Mary Carson came to me with what may be a unique problem, or it might be a trend for the future.

“Our son, Marvin, came to work with us about six years ago. He brought his wife and his two children to the farm. Of course, we had more than enough work and enough income to go around,” John said. “But now times are changing and I’m not sure if Marv came back to farm or if he came back because prices were so good then!”

Mary chimed in “The first couple years were great. But then Marv’s wife, Alberta, decided they needed a big new home. Next thing we know they are plotting out and building a home so big our house could fit inside of it. They drive better vehicles than we have. Kids these days don’t want to start the way their parents did – small and work your way up. They want to start at the top!”

John said “Since the prices were a little tough last year, we noticed things are not going quite as smoothly as they did before. Marv’s a lot more short-tempered with everyone and Alberta doesn’t want to talk to us anymore. I know you said you’ve got to have a will to help out these kids – so we talked to our attorney making certain Marv gets the lion’s share of the property. Now we’re not so certain we did the right thing.”

Farming is easy and fun when prices are good, the weather cooperates, and there’s all kinds of money to go around. However, as in any business cycle – mine included – there are ups and downs. A lot of second generation children came back to farming – either on their own or at the urging of the parents – and now we’ve entered a new and different financial cycle.

Unfortunately, if the first six years of your business experience shows you that you can do no wrong and money almost literally grows out of the ground, it’s not going to give you a very good long-term perspective on business on the whole and farming in particular. Being young and not having lived through the financial difficulties of the eighties and nineties when times were tough gives the next generation a feeling of being ten foot tall and bullet proof.

“What is the reason Alberta’s not talking to you?” I asked John and Mary. Mary replied “Well, when they were building that new home we tried to tell the kids not to go overboard, but Alberta wanted what she wanted. We kept trying to tell them to slow down a bit and, finally, she told us she was tired of us ‘meddling’ in their lives. Now we barely get to see the grand-kids anymore unless Marv brings them around,” as she wiped a tear away.

“Family difficulties aside, perhaps it’s time to go visit with the attorney again, John and Mary. Based on what you’ve told me, Marv gets most of the land and machinery while you’re other children only get a percentage of what Marv will get.”

“Perhaps you need to think about a clause that says something like ‘Marv must be actively farming at the time of our death(s) and continue to actively farm for at least ten years after our death in order to maintain his share.’ If he does not, then the farm shall be divided equally between all of your children, or maybe Marv gets a slightly bigger share than the others.”

“That way, if you two should die, and Marv and Alberta decide farming isn’t the life for them, they can’t put the whole thing up for sale, reap in millions of dollars on the sale of land and machinery and leave the other children in the lurch.”

Any business will go through times in the crucible – times when we find out the true metal of the people in that business. Some of these children will adapt to the times and other children will find that this life isn’t what they thought it would be and leave. Whichever the case, you need to add some clauses to your will that will handle whichever fork in the road they decide to take – if that should happen after your death.

“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 #8873

Written by Michael Baron on . Posted in Taxes, Trusts

Jack and Alice Wilson came to me to ask some questions about estate planning they were completing in Minnesota. Their attorney had suggested a revocable living trust with half of the estate going to a by-pass or marital trust upon the first death.

“Our attorney suggested the revocable living trust to make certain our large estate – approximately $8,000,000 – does not go through probate and help us avoid taxes” Jack said. “He thought we could use our first Federal exemption of $5,340,000 to put into this trust – upon first death, likely me – so that this amount would grow without taxation to our two children. Neither child farms so it’s really about tax avoidance using the revocable living trust.”

“We have two children who have never showed an interest in farming. We question whether or not they would handle the value we have accumulated wisely” Alice said. “Maybe they would, but their husbands would be a handful. Our attorney told us the revocable trust would help us with this, as well.”

“So, we have two problems here. One, you want to avoid estate taxes and two, you’d like something put together so the two children (or their spouses) can mature into their inheritance, is that about right?” I asked. Both agreed this is where we they want to go with their planning.

I read through the revocable living trust and, curiously, I found nothing about the preservation of assets. There was a lot of legal stuff about splitting the estate upon the first death into two parts for estate taxes, but there was nothing there about the ability – or the taking away of – the children to handle the estate. In fact, they were named as secondary trustees.

But nowhere was it stated when (what age) the children received their inheritance, how they would receive it (lump sum or over time), how they receive it (based on their life circumstances at the time), etc. In other words, it was a nice looking document but left people in charge with no instructions about how to handle things in the event of Jack and/or Alice Wilson’s death, or their inability to handle affairs prior to their death. If I tell my trustees ‘You’re in charge if I am disabled or dead’ I sure want to give them some guidelines about how to handle things.

Also, I asked Jack and Alice “Would your two children or your trustees be able to better handle things upon your death or mental disability with this document? Or does this document just make them more confused and more likely to return to the attorney for help when this situation arises? As far as decisions made during your lifetime, wouldn’t a simple Power of Attorney to the people of your choosing accomplish the same thing as naming trustees today?”

Last but not least, I was confused with the standard document stating half of the estate would go to a by-pass trust upon the first death. This is normally a great feature – unless you happen to live in a state where they have inheritance taxes such as Minnesota.

In Minnesota, there are state taxes. In essence, every person is given a $1,400,000 exemption which rises every year until 2019 when the state exemption reaches $2,000,000 and then stops growing. Estates in excess of this are taxed at a low rate of ten percent and a high rate of sixteen percent. With an estate of eight million dollars, I’m now confused by the language in the trust.

If I put half or four million dollars into a trust to escape estate taxation upon the second death, wouldn’t I incur taxes on the excess (somewhere between two million six hundred thousand and two million) to my estate from the state of Minnesota at the first death?

And if I only put the amount the state of Minnesota allows me to put (the aforementioned amounts) and leave the rest of my estate to my spouse, aren’t I back loading the second death for both Federal and Minnesota taxes? Was that the intent of the legislation was to have people pay ten percent taxes upon the first death to Minnesota to avoid the possible fifty (State and Federal) percent tax rate later on upon the second death?

What it tells me is two things. One, I don’t know the answers for certain and two, a typical will or revocable trust that avoids Federal estate taxes – at least in Minnesota or other states with an estate tax – may not be enough.

“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

Family Fireworks

Written by Michael Baron on . Posted in Equalization, Farm versus Non-Farm, Long-Term Care, Partnerships

Hal and Judy Sanders came in to visit with me about their farm situation. I asked ‘How was the Fourth of July?’ and Judy stated “Well, if you wanted to see fireworks, you should have been at our house that weekend. We had all our kids home – along with our farming child – and we brought up the fact that we wanted the family farm to go to the farming son and the rest of our assets would go to the other two children.”

Hal noted, “One daughter said ‘What happens if you go into the nursing home and there is no cash when you die – no other assets left? Does that mean we lose our inheritance and Jim (the farming son) gets to keep his?’ I never expected that from her – although she’s got a husband who keeps asking questions – if you know what I mean.”

Judy said the other son thought he’d like to own some land too. “He wants to do some hunting and he’d like to keep some cows. Now everyone wants a piece of the pie. By the time we got a little into discussing all this, the fireworks were flying all right!”

I told Hal and Judy “It’s a great thing you brought this up now and got to experience what will likely be a microcosm of what will happen upon your second death. However, everyone in the family feels like they own a piece of the family farm for their own reasons, right?” They nodded in agreement.

“When a person feels like they own something and suddenly that something is lost to them, every human being goes through the same steps to deal with this loss – sadness, anger, bargaining, depression, and finally acceptance. They are still somewhere between sadness and anger. My guess is the next thing you’re going to hear is ‘bargaining’ where they come up with an ‘alternate’ plan to owning the farm assets – if you haven’t already.”

“However, if you feel like Jim needs to own the family farm in order to make a go of it in agriculture, you’re just going to have to let your other children go through these steps. Some steps they will pass through quite quickly and others may take some time. But you have set them on the path of the future and the sooner they reach acceptance, the better off everyone will be.”

“If you give in to the anger, or the sadness, and especially the bargaining – when they come up with alternatives for dividing the family farm, you’re likely going to risk the family farm and its ability to function in the future. Imagine if your son, Joey, wanted to run some cows on the family farm. Who’s going to feed them, care for them, house them, etc? Is he thinking Jim would do that for him?”

“Alternatively, if Jim and Joey can sit down and work out a plan now – even if it’s a plan that will likely never come to fruition – about how to run some cows together and who would do what in this partnership and how each of them would be paid – you can eliminate the problem with Joey. Get this agreement in writing, however, as they tend to forget the ‘details’ of the deal they made.”

“Second, sit down with your daughter and explain to her that all of the assets are at risk if either or both of you go into a nursing home. Perhaps a fair agreement would be that if this were to happen, each child would lose a proportionate amount of the assets they received in order to pay for this care.”

“For example, if Joey receives seventy-five percent of the total assets, then he should be responsible for seventy-five percent of the care costs and the other two would contribute twenty-five percent – or their share of the estate.”

We have to recognize people go through all kinds of different emotions, feelings, and sometimes these can turn into fireworks, but with a patient hand and an ability to work out compromises, anyone can make a successful farm estate 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 #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

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.