If you think it’s bad that 60% of farmers & ranchers don’t have a will, here’s what’s even worse: 89% don’t have a transfer plan, as reported in the recent article “10 Farm Transition and Estate Planning Mistakes” from Farm Journal’s Pork Business. Here are the ten most commonly made mistakes farmers make. Substitute the word “family-owned business” for farm and the problems created are identical.
Procrastination. Just as production methods have to be updated, so does estate planning. People wait until the perfect time to create the perfect plan, but life doesn’t work that way. Having a plan of some kind is better than none at all. If you die with no plan, your family gets to clean up the mess.
Failing to plan for substitute decision-making and health care directives. Everyone should have a power of attorney and health care directive planning. A business that requires your day-in-day-out supervision and decision-making could die with you. Name a power of attorney, name an alternate POA and have every detail of operations spelled out. You can have a different person act as your agent for running the farm/ranch and another to make health care decisions, or the same person can take on these responsibilities. Consult with an estate planning attorney to ensure your documents reflect your wishes and speak with family members.
Failing to communicate, early and often. There’s no room for secrecy if you want your family business to transfer successfully to the next generation. Schedule family meetings regularly, establish agendas, take minutes and consider having an outsider serve as a meeting facilitator.
Treating everyone equally does not fit every situation. If some family members work and live on the farm/ranch and others work and live elsewhere, their roles in the farm/ranch’s future will be different. An estate planning attorney familiar with farm/ranch families will be able to give you suggestions on how to address this.
Not inventorying assets and liabilities. Real property includes land, buildings, fencing, livestock, equipment, and bank accounts. Succession planning requires a complete inventory and valuation of all assets. Check on how property is titled to be sure land you intend to leave to children is not owned by someone else. Don’t neglect liabilities. When you pass down the farm/ranch, will your children also inherit debt? Everyone needs to know what is owned and what is owed.
Making decisions based on incorrect information. If you aren’t familiar with your state’s estate tax laws, you might be handing down a different-sized estate than you think.
Lack of liquidity. Death is expensive. Cash may be needed to keep the business going between the date of death and the settling of the estate. It is also important to consider who will pay for the funeral and how? Life insurance is one option.
Disorganization. Making your loved ones go through a post-mortem scavenger hunt is unkind. Business records should be well-organized. Tell the appropriate people where important records can be found. Walk them through everything, including online accounts. Consider using an old-fashioned three-ring binder system. In times of great stress, the organization is appreciated.
No team of professionals to provide experience and expertise. The saying “it takes a village” applies to estate planning and farm/ranch succession. An accountant, estate planning attorney, and financial advisor will more than pay for their services. Without them, your family may be left guessing about the future of the farm and the family.
Thinking your plan is done at any point in time. Like estate planning, succession planning is never really finished. Laws change, relationships change, and family farms/ranches go through changes. An estate plan is not a one-and-done event. It needs to be reviewed and refreshed every few years.
Reference: Farm Journal’s Pork Business (June 28, 2021) “10 Farm Transition and Estate Planning Mistakes”