Farmers and ranchers are prepared for a good portion of what their day, their week or their month may throw at them. Many don’t want to think about being prepared for what would happen if they were injured or even died.
“These are things that not enough people, not just farmers and ranchers, talk about,” said Jordan Gottlieb, New York Life Insurance agent and presenter at High Plains Journal’s recent Cattle U and Trade Show.
There are deep feelings when it comes family land and animals, and Gottlieb works with farmers and ranchers to put their goals and plans into action.
“The more important question is, ‘What happens if I don’t plan how to transition my farm or ranch?’” he said. “Without a plan, assets in an estate will generally pass according to statute, meaning that the state will control the distribution.”
This could create tension between the surviving spouse and children, meaning the farm or ranch may be sold off to pay any taxes owed or appease hurt feelings.
“While most people focus on taxes, I believe that farmers and ranchers should talk more about preparation,” he said. “By preparing you can reduce potential family strife and you can prepare for ways to reduce or pay for potential estate taxes. You may be able to reduce any debt burdens rather than saddle your children with them.”
The plan needs to address difficult and important questions, including:
• Who will be the successor? If none of the children is interested, then the question becomes if the property will be sold before or after death of the current owner. If more than one child wants to continue the operation, how will property be divided amongst them?
• Will the assets be sold or gifted? Will it be a combination of both?
• What will be included? Is there a house on the farm or ranch? Should it be part of the deal?
• What is fair? “Fair doesn’t necessarily mean equal,” Gottlieb said.
“Keep in mind that as life changes often the answers to these questions will change as well,” he said. “By preparing, like with practicing, you will be more prepared for the curveballs life throws at you.”
He may work with insurance, but he says 90% of what he deals with is emotional, “once the emotion is dealt with, it moves along pretty quickly,” Gottlieb said.
Take the time
When challenges move quickly that is when fear steps in. If a farm or ranch has been a one-person operation for even just a generation, the thought of that individual not being the main decision maker anymore can bring on monumental panic.
Change is scary and some farmers and ranchers can feel like their livelihoods are out of their control when talk turns to passing it on to someone else—even if that person is a close family member. That is why Gottlieb suggests having a trusted team to ensure plans move in the desired direction.
“These are not simple issues,” Gottlieb said. He suggests finding a business or estate planning attorney or an accountant who has farmers and ranchers as clients.
“Very few people have that experience, so make sure to interview them,” he said. “Make sure you are comfortable with them.”
The farmer or rancher must be comfortable with their advisor. A level of comfort means communication will be open and honest between the two parties. Honesty will make the foundation of the transition solid and steady.
In for a penny
Solid and steady work adds value to the farm or ranch over the years of ownership. Gottlieb said farmers and ranchers excel at taking pennies and turning them into dimes. Estate planning is when those same farmers and ranchers protect those dimes.
“Keep in mind, in most cases, the cost of preparing for and protecting an estate is far cheaper than the potential costs of not being prepared,” he said.
Farmers and ranchers can see their land appreciate in value over their years of ownership. Without preparing for the future, Gottlieb says heirs could be forced to sell that same valuable land on the auction block—taking what they get from the highest bidder.
“Without a proper strategy, because of potential estate taxes, their children may end up with less than what their parents left them, in a sense, turning dimes into pennies,” Gottlieb said.
Once a plan is in place, the farmer or rancher can visit with their banker and others they do business with to let them know the steps moving forward. This can make marketing crops and cattle less of a guessing game for surviving business partners.
As part of his initial interview, Gottlieb tells his potential clients about his past professional life and how he repossessed multimillion-dollar businesses. Levity helps put clients at ease.
“I bring a little humor into the conversation,” he said.
This humor may ease the tension that comes with discussing money matters and assets versus liabilities but it also offers another lesson when it comes to estate planning.
“I tell them how some of that could have been avoided,” Gottlieb said. “Difficult takes a day, impossible takes a week.”
For all of the advantages to planning for the future, Gottlieb did discuss one disadvantage.
“The main disadvantage to having a strategy is not updating it on an annual basis,” he said.
Gottlieb said major events in life such as marriages or divorces can change the best plans. What farmers and ranchers don’t take into consideration is that buying or selling land, cattle and equipment can shift those goals and objectives as well.
“Bottom line—get a basic framework,” Gottlieb said. “And be prepared to update on an annual basis.”
Jennifer Theurer can be reached at 620-225-1858 or firstname.lastname@example.org.