A perspective on estate planning for farmers
The size of the average farming operation has continued to increase over the past few decades, while the number of farmers keeps decreasing. From an estate planning perspective, this has two major implications: (1) There are more and more non-farming heirs to consider, and (2) because of the size and complexity of modern farming operations, proper planning is a must.
Let’s start with a few items that everyone (even non-farmers) should have in place.
- Draft a will and update it often
- Consider a opening a trust
- Set health care directives
- Identify a financial power of attorney
- Review or set beneficiary designations
- Review life insurance needs
- Make final arrangements
In addition to the above, farmers especially should also address the following items.
- Farmers in particular seem to like to avoid probate. Probably because, when an estate is probated, it becomes part of the public record at the courthouse.
- Continuation of the farming operation
- Succession planning
- Non-farm & on-farm heirs
- Will the land be retained?
- Because one or more of the heirs are farming, or
- To provide you with retirement income, or
- To provide an income stream (cash rent) for the heirs
- Will the land be sold?
- Because you need the proceeds for debt repayment, nursing home expenses, etc., or
- Because none of the heirs are farming
- If sold prior to death, you are likely to incur capital gains taxes
- If sold after death, the land will likely receive a stepped-up basis
- Regardless of what your intentions are, and to help kick start the planning process, you should consider:
- Having a family meeting
- Do it early and include everyone
- Document in writing what was discussed, and distribute a copy to all family members, so that misunderstandings are either eliminated or at least kept to a minimum.
My Family’s Story
My parents were farmers and landowners. At retirement, they continued to live on their farm and rent the land out. Years later, they reached the age where they wanted to move to town. None of their children were farming and l and was bringing a pretty good price. So they decided to sell the farm. Selling caused them to incur a substantial amount of income taxes. If, instead of selling, they had let the farm pass to their heirs at the time of their deaths, it is likely that the farm could have then been sold with little or no income tax consequences. But my parents never looked back, never regretted their decision. For them, it was about peace of mind. They didn’t have to worry about what land prices or cash rents were going to do. They had the money in hand, so to speak. This greatly simplified their lives. That’s what was important to them.
For others, nothing is more important than “keeping the land in the family.” To do so, oftentimes a trust is utilized. As one of the fiduciary officers with the TS Prosperity Group, I work with several trusts that hold farmland as the primary asset. There are many potential benefits such as: being able to keep the land in the family, providing an income stream to beneficiaries, avoiding the capital gains tax that would likely be incurred if sold during your lifetime, etc. Another potential benefit of a trust is that it can be designed to limit, or spread out over time, the amounts that are distributed to a beneficiary, rather than simply allowing him or her to receive a single lump sum at the time of your death. This may be desirable if you have one or more children that just don’t handle money very well, or that are minors at the time of your death.
The point is that each family’s situation is unique. Your priorities & goals are different than those of your friends or neighbors. That’s why your estate plan should be tailored to your specific circumstances.
Many families procrastinate when it comes to estate planning. Some consider it to be an unpleasant or difficult subject to talk about. Others simply don’t know where to start. The various reasons for putting off estate planning don’t really matter. What does matter is that you decide to make it a priority and take steps to get your estate plan in place.
TS Prosperity Group can help you during this process. Consider us to be a trusted resource for you and your family. The peace of mind that comes from having your estate plan in place is priceless.
At TS Prosperity Group, we IGNITE PROSPERITY® by helping our clients do more with their money. Whether it’s saving a little extra cash each month or accomplishing a long-term strategy, our goal is to help you transform your financial life. Call and schedule an appointment today, one of our team members would love to help you do more with your money at TS Prosperity Group. TS Prosperity Group is based in Council Bluffs, Iowa, with clients across the midwest. For more information visit tsprosperitygroup.com or call 844-487-3115. #igniteprosperity
Rich Purdy, CFP®
Fiduciary Officer, VP
Rich has been with TS Bank since 1984, and currently serves as a Fiduciary Officer with TS Prosperity Group. Rich works with clients in all areas of wealth management and financial planning. Rich obtained his CERTIFIED FINANCIAL PLANNER™ designation in July of 2000. He also provides farm management services to TS Prosperity Group clients, and is a licensed real estate broker. Rich grew up on a farm in southwest Iowa. He is a graduate of Iowa State University, with a Bachelor of Science Degree in Agricultural Business. His work experience includes seven years as a Consultant with the Southwest Iowa Farm Business Association, 30 years as a licensed real estate agent/broker and 32 years of banking.