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Serving: IA

Legacy planning preserves family ties

Rod Swoboda Cornfield with silos in the background
KEY TO SUCCESS: To be successful in farm succession planning, open lines of communication with family members is needed.
Legal Issues: Develop a succession plan to transition the farm’s business and assets with minimal disruption to family relationships.

Earlier in November, I attended the American Agricultural Law Association’s annual symposium. I attend this conference every year and always learn something new from lawyers around the country to bring back to my practice. Despite geographical differences, it is surprising how many of us deal with similar issues for clients, including farm programs, government regulations, tax changes, COVID-19 issues, and succession and estate planning.

At the recent meeting, there was much discussion about post-election issues, including the federal estate tax and implications of a change in administrations. One thing remains unchanged. Each farm family needs to reexamine the family’s farm succession plan periodically. If they haven’t developed a plan, it is essential to start the process.

Establishing a legacy

One of the universal issues most ag-focused lawyers seem to deal with is working with families and the unique rewards and challenges that brings to our practices. There was much discussion in presentations about creative ways to achieve farming family goals with estate and succession planning in an ever-changing ag landscape. Some practicing lawyers remarked that estate planning can oftentimes feel like engaging in family law, because family feuds and litigation among families, unfortunately, hasn’t declined.

Most farming operations are more than a business. Most farms have been in the family for multiple generations and that makes legacy planning even more important. You may ask, what I mean by legacy planning. Legacy planning involves the traditional concepts behind estate and succession planning, but there is another component — that is protecting the family and family relationships long term.

We all know it can be difficult to navigate complex family relationships and expectations during the planning process. Every family member has a different personality, perspective and experience. Sibling relationships especially change over time with life events, including marriage, careers, education and distance. Succession planning and navigating these dynamics isn’t easy, but it is rewarding, important and essential if the goal is to continue the operation and continue a family farming legacy.

Pitfalls of failing to plan

Most farm families know they need to plan for the future, and most farm families I work with want their children to keep the family together once they are gone. One of the major concerns I hear parents communicate is they want to treat their children fairly and they don’t want the farm and family relationship to fall apart. They want to avoid feuding and litigation between siblings. There are several factors involved in preserving the family relationship:

First steps. Often, the hardest part to developing and implementing a successful farm legacy plan is to just start the conversation within the family. Rather than getting overwhelmed by the process, you may want to start with a goal-setting meeting with a professional and build from there. Once you have set your goals, the professionals you work with, including attorneys, accountants and CPAs, consultants, financial advisers, and your banker can help you implement your goals and strategies.

Family harmony. Consider these practical tips for protecting sibling and family relationships. Every family has different dynamics, every farm has a different operation, and every legal situation involved is different. That said, it is often helpful to involve children or a potential farm successor from the beginning. Family involvement can come in different forms. However, many planners have found that involving the essential parties in the plan from the beginning — most especially the heirs or parties that will carry on the farming business — helps avoid communication issues in the future.   

Sibling partnerships. Consider an entity. Is there an existing farm business entity that can be used as a planning tool? If not, consider one. At the onset of the succession planning process, one of the issues that should be discussed is whether a business entity can play a part in the overall plan. A secondary question is if an entity is a viable way to accomplish succession planning goals, which entity should you use? A trust, partnership, C or S corporation, limited liability company or partnership, family limited partnership, etc.? As you might suspect, there is no magic one-size-fits–all entity.

The most important benefit in using an entity in a family farming operation, especially if siblings are farming together or own land together, is the establishment of a “road map” or operating agreement that addresses important topics such as buyouts, death, divorce, voting and dispute resolution.

Marriage, divorce, death and grandchildren. One life event that can change the family dynamic between siblings is the addition of a new family member. I’ve found that families that include spouses or in-laws in conversations about legacy planning seem to achieve a different level of success because the likelihood of a misunderstanding down the road declines.

There are also additional items to think about in a world where divorce unfortunately happens. Have children thought about premarital agreements or how to handle an inheritance? These items at least need to be discussed in a thoughtful way. Families also need to discuss what would happen in the event of a death of a farm heir. What is the plan for spouses and grandchildren?

Life insurance. What are the benefits of using life insurance as an estate planning tool? If parents desire to keep the farm operation intact for the next generation, life insurance may be used to provide liquidity upon the death of parents to fund the “buyout” of the off-farm heir and treat a sibling that doesn’t want to be involved in the operation fairly. Purchasing life insurance provides the ability to gift cash instead of farm assets to “off-farm” children and if communicated properly can be a helpful tool.

As a parent myself, I want my children to know I worked hard to plan for the inevitable in the best way I could, and that it is important to me that their relationship remains intact.  I also know that, above all, my relationships are most important, especially with my parents, sibling, and our spouses and kids. Remember, there is no one-size-fits-all farm succession plan, because each family is unique. We all know each family and each farming operation needs a personalized plan. In my experience, communication is key to developing a plan that your kids will remember you by in a positive way.

Herbold-Swalwell is an attorney with Brick-Gentry in Des Moines. Email erin.herbold-swalwell@brickgentrylaw.com.

 

 

 

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