My wife is a natural runner. An avid runner. A 3-hour marathon runner (7 minutes per mile for 26.2 miles). In contrast, I am not a natural runner. I have heavy feet. I can think of many things to do that are more enjoyable.
Despite my deficiencies, I have spent a great deal of time and energy running the last 20 years, simply because I love her.
My mind is active when running. Often, an idea will come to me that parallels farm transition issues and serves as inspiration for content to write about.
We were in Arizona over Thanksgiving for an after-harvest getaway. Each morning, my wife would typically run 4 or 5 miles and then meet me to run 3 more together.
Our standard route has 48 curb cuts in it. A curb cut is a spot where the city’s curb blends into the street, so foot traffic doesn’t have to step up or step down to transition from street to sidewalk. I purposefully adjust my path to run over the smooth portion of the curb that has been cut out to the level of the street instead of stepping over the curb.
With 48 curb cuts on our normal 3-mile course, we would traverse approximately 12,500 possible curbs running five days a week in a year’s time.
If I can force myself to run actively for another 20 years, that is approximately 250,000 opportunities for me to trip during the transition from street to sidewalk. With over 250,000 opportunities in my running lifetime, it’s inevitable that someday I will miss a curb.
It may happen later in the run when the temperature has risen, and my legs are tired. It may happen anytime when my mind wanders and I’m not paying attention.
In either scenario, bad things could happen during the transition from street to sidewalk if I don’t intentionally take the easiest possible footpath.
Consciously choosing the path of minimum resistance by running over the flat part is the best way to assure that I’m not tripped by a curb.
It dawned on me that families can be “tripped up” in much the same way in planning for the transition of a family farm.
‘Our son wouldn’t do that’
A retired couple with no farm heirs came to our office last week. During our initial fact-finding meeting, we discussed their current situation and identified future issues and concerns.
This couple has two children. A son and a daughter. Their daughter passed away, leaving a spouse and two children. Her spouse has since remarried.
Amongst other issues, they wanted to divide their farms up between the children of their deceased daughter and their son (or his children if he passed away before the surviving parent).
After their daughter’s death, they updated the beneficiary of their IRAs and life insurance policies, making their son 50 percent beneficiary and 50 percent divided between their deceased daughter’s children.
The also updated their various bank and cash accounts (totaling approximately $200,000), with a POD (Pay-On-Death) designation for simplicity to their son.
This was a “curb trip” moment. At their death, with a POD designation at the bank, they have innocently transferred an extra $200,000 of cash to their son only and not to their daughter’s children.
When asked, they immediately told me that their son would divide it among their heirs equally.
They have not yet communicated their intention with him. In fact, they have inadvertently sent him a conflicting message by updating their IRA and life insurance beneficiaries to include their deceased daughter’s children but only put their son on their cash accounts as POD.
Adding a child’s name on bank accounts as a joint account holder or a POD designation when the intent is for multiple heirs to share the asset is a future disagreement waiting to happen.
I asked, “Is there a chance your son could assume that you intended the $200,000 cash accounts are to go only to him because you left it to him with a POD designation?”
The mom said, “Our son wouldn’t do that.”
In this case, she may be right, but my mind wandered to being tripped by a curb. If enough families were in the same situation, eventually it is a matter of time before a family is put to the test of unintended inheritance consequences.
‘Our family will get along’
My next appointment was a closing meeting with family who had come to terms with how to handle “fair vs. equal” with their children.
We had started their planning process over the summer, but had to take a brief break during harvest.
Their son had been farming with them for 20 years. In hindsight, they wished they had been transferring equity to him a little each year. So they decided to “catch up” and transfer 1 percent of their land and 2 percent of their operation for each year of service he had with them (20 percent of their land equity and 40 percent of their operating equity).
They were confident their other three children would not have an issue with this transfer of sweat equity for the time their son had spent helping them without compensation.
They told me in a previous meeting that none of their three other children wanted any of the farm.
“Our family will get along,” the dad said.
To which I replied, “I’ve heard that one before.”
I strongly encouraged them to do one of three things: engineer a family meeting to discuss their proposed plans; share the minutes from previous planning meetings with all their children; or at a minimum, discuss their proposed plan with them individually.
They chose to privately discuss their plans with their children one at a time.
Would you believe once they spoke to their kids individually, an issue surfaced?
One of the kids got out a calculator and put a number to 20 percent of 400 acres ($800,000 if it appraised at $10,000/acre) and 40 percent of their $1 million of operating assets ($400,000).
Their report back to me was that one child immediately got on the phone with the other two and started a dust storm over the $1.2 million in sweat equity that mom and dad felt their farming son had earned over the last 20 years.
My mind wandered to being tripped by a curb. If enough families were in the same situation, eventually, it is a matter of time before a family is put to the test of sweat equity catchup.
My hope is that with good planning and communication, your family will be able to deliberately avoid being “tripped” by curbs that may hinder the success of your farm transition plan.
For 25 years, Steve Bohr has been a partner in the farm continuation firm of Farm Financial Strategies, Inc. For additional information on farm continuation issues or if you have a question please contact Steve via email at Bohr@FarmEstate.com or by phone at 1-800-375-4180.