With uncertainty in nearly every decision that is made, a farmer must be a risk-taker. This kind of constant instability requires a sense of patience, optimism and faith.
The amount of capital a farm operation has to deal with necessitates not only a good banker, but also the need for being goal-oriented, prepared and thrifty.
These risk-taking traits are admirable, but the attribute that makes farmers exceptional is their distinctive wisdom and insight.
The level of understanding difficult financial and psychological concepts that farm families have exhibited to me over the last 26 years has been fascinating and the inspiration to the topics in this column.
Each day brings new observations and statements from family planning meetings. Keeping track of these insights and the context they were made has helped me to recognize and appreciate the importance of using insight to take action, rather than hindsight to wonder after it’s too late.
Sharing them could be of interest to you in your estate planning process.
“Each step in the process is valuable — no matter how minor.”
Like any process, there are some steps that seem unimportant, but may turn out to be vital.
A seemingly minor detail in this family’s plan was to have a long-term lease option for their corporation to rent their land at the Iowa State Extension average in the land owners’ financial power of attorney document.
With an Alzheimer’s diagnosis, there is a chance this power of attorney document could control the land for a long time.
“Our plan should be based on our goals, not our adviser’s capabilities.”
This particular family traveled over 400 miles to meet. Their goal was to hire an experienced professional team based on specialization rather than geographical location.
“Indecision is a choice, and seldom the right one.”
This is true in most businesses, but especially in farming. Most successful farm families understand that making no decision can be the same as making the wrong decision.
This comment was made by a 60-year-old farmer who could not decide on terms to buy his family land from his parents back in 2004. He wanted to wait until land prices declined.
His parents passed away in 2013 still owning the land. His decision was altered to either borrow three-fourths of $10,000 per acre to buy out his three siblings or let the land go.
“Timing is everything. Death locks in a lifetime of land value with fluctuating commodity prices.”
This particular family was concerned that they needed to buy their operation and land from their father’s estate at 2014 values, but would be using future commodity prices and input costs over 20 years to pay for it.
It’s unfortunate if an inopportune death triggers a buyout at a bad time. The year 2018 may turn out to be one of those bad times.
“Plan to avoid crisis management with process management.”
Bad things tend to happen to good people who are forced into crisis management. Avoid this by having a plan in place before an issue arises.
“Moderation when times are good. Greed will get you into trouble.”
Most businesses have a desire to grow, but real growth doesn’t necessarily mean getting bigger at all costs.
In 2012, this particularly wise farmer appropriately reminded me that what goes up will eventually come down. Cycles ultimately repeat themselves, and eventually we experienced a negative cash-flow trend.
Those with low debt structure and positive cash flows will have the best opportunity to survive a generation transition.
“There aren’t many of the same names in a 50 year old plat book.”
This concept is fascinating to me after confirming it in our own township. It makes me wonder whose name will be in our township plat book 50 years from now.
“A succession plan is an opportunity to teach our children our trade and a chance for them to take it to the next level.”
This particular family was looking for a plan for both their operation and land transfer. They wanted to gradually transfer equity to their children over time, but teach them how to manage ownership along the way.
They made a separate entity for their operating assets to begin the transfer of equity and responsibility to their farming heirs.
They put their land in a different entity with rules for future management, but ownership will include both farm and non-farm heirs.
“We want to lock in today’s interest rates to defend against future rate changes.”
This family decided to sell their land to their children on a 2.5 percent interest 25-year contract at $4,000/acre in 2015.
They utilized the low interest rate (AFR) and lifetime gift exclusion ($5.43 million in 2015 and inflated to $11.18 million in 2018 per person) to take advantage of reduced pricing and favorable interest rates.
“We have heard of a conservation easement. We would like to put a family easement on our land.”
This is an interesting concept that this family incorporated. There is nothing officially called a “family easement.” They created a family trust to own the land to provide the use to any family member actively engaged in farming to keep the land in the family for his grandchildren to farm.
“The only thing more difficult than turning cash into land is turning land into cash.”
This was a captivating comment made by a man who had cash in the bank and was looking to buy land but disturbed with the possibility of his children turning it back into cash after his death.
“Inheritance is a privilege and not a right.”
This is one of my favorite statements made by a long-term client. She was insistent that her late husband’s wishes would be carried out.
They had talked about the difference between an inherited privilege and a birth right. They agreed before he passed that they weren’t the same thing.
“The struggle between inheritance and legacy is real.”
If you have your health, character and faith and people you love, then consider yourself fortunate. If you can talk with your family about anything and nothing, then you are privileged.
If all you have are possessions and the dollar amount of an inheritance, then you might be deprived.
As humans, we were designed to have two ears and one mouth. We should listen more and talk less to others with valuable insight.
My sincere hope is that sharing these statements from others with similar circumstances may provide awareness to help you evaluate your farm continuation plan.
For 26 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.