Long Term Goal Planning Worksheet
Use these questions as a starting place for your farm Estate or Succession Planning. You can download the worksheet as a PDF here.
Personal (Generation 1) Goals
Do you wish to continue farming as long as possible?
Do you plan to retire on-farm?
Do you plan to retire off-farm?
Do you plan to “retire, part-time”?
Do you wish to preserve all of the farm ground, intact?
Do you wish to preserve some of the farm ground, intact?
Analysis of Timing
Do you plan to retire/transfer farm within the next 5 years?
Do you plan to retire/transfer farm within the next 10 years?
Do you plan to retire/transfer farm within the next 15 years or more?
Do you want to retain ownership/control of your assets until you die?
Analysis of Generation 2 and 3
Do you have children who are interested in farming?
Do you have children who are not interested in farming?
Do you have children that can/cannot manage assets/money?
Do you have children that earn a comfortable income?
Do you have children who are minors or have special needs?
Do you have “urban-minded” children who prefer stock-market investments to farm investments?
Do you have grandchildren that you wish to provide for?
Analysis of Assets
Do you own farm real estate?
How are your assets titled (corporation, husband & wife, or “tenants in common”)?
Do you have farm debt?
How much are you leveraged in your farm real estate (50% -75% – more – less)?
Do you plan to expand your farm operation by purchasing additional farm ground?
Do you have non-farm assets (retirement accounts, cash accounts, stock accounts)?
How much (percent and acreage) do you cash rent or farm “on shares”?
Do you own your home or does your farm own your home?
Analysis of Current Structure
Do you currently have at least one farm entity (LLC, Corporation)?
Do you currently have at least three farm entities (LLC, Corporation plus yourself)?
Do you currently have at least one child actively involved in the farm operation?
Analysis of Third-Party Considerations
Do you have employees?
Do you have a “key” employee?
Do you have a friend or neighbor that is a young farmer or who wishes to expand?
Do you (or your spouse) have special health-care needs?
Are you worried about long-term care costs?
Do you have charitable bequests (church, university, social welfare, etc.)?
7 Tips for Conflict Management
As an attorney, I’m frequently asked mediate disputes between people or groups. Along the way, I’ve developed some guidelines that served me well to keep the peace while managing opposing viewpoints.
1. Practice Active Listening – What are the REAL goals? Frequently, people are so concerned with getting their turn to speak, they don’t listen to what the other person is saying. Slow down and really listen to the other person (instead of thinking about your next response). Not only might you learn something important, but the speaker will appreciate your respectful demeanor.
2. Look for Common Ground. The best way to meet someone is in the middle – a place
where you both agree. Start there, and work your way toward the areas where you
3. Choose Your Battles. Not everything is critically important. Many times, disagreements escalate because each party insists that every issue has equal and high importance. Prioritize your issues – what can you live without? What is really important? What must be resolved, right now, and what can wait until later?
4. Preserve Dignity. This is also called “saving face,” and it’s not about you – it’s about the other person. My greatest successes in conflict resolution are when I’ve made a point to preserve both my client’s dignity and the dignity of the other person. If people feel that they are honored and valued as individuals and that their point of view is given credit by the other side, they spend more time working toward a solution to a problem, and less time defending their honor.
5. Speak Quietly and Use Civil Language. Loud voices and strong words (not only vulgar language, but inflammatory, belittling or other words that will stir up trouble and ignore Tip #4, above) focus on posturing, not on the problem. Most people listen less when voices are raised.
6. Step Back, Take a Breath, Cool Off. No matter what people say, conflict is personal. When people say, “don’t take it personally,” they are only compounding the insult. Of course, it’s personal, or else it wouldn’t be a conflict. If you find yourself getting angry and offended, and unable to return the discussion to a point of reason, take a break. I have ended meetings when they start to get out of hand, rather than allow the discussion to devolve into personal attacks. This will give everyone a chance to cool off and think about things, and return ready for meaningful discussion.
7. Assume There is a Solution. How you approach conflict resolution is critical – if you believe that there is a way to resolve a conflict, you will find it. If you believe that the problem cannot be solved — you will prove yourself right.
FAQ: Farm Succession Planning
1. How much can I transfer to my children and grandchildren without paying tax?
In 2020 each person can transfer $23M ($11.5M each for Husband and Wife with minimal planning) free of Federal Estate Tax. A Federal Gift Tax Return is required for large gifts. Anyone can transfer $15,000 to any other person (Annual Exclusion Amount). If you are married, that AEA doubles to $30K. If the object of your transfer is also married, that amount doubles to $60K ($15K from each spouse to each child and spouse-in-law)
2. What factors do I need to consider in planning for my farm’s future?
See the “Long Term Planning Goals” questionnaire for a detailed list of questions to consider.
3. Should I discuss my farm and succession planning with my children?
Absolutely! If you plan to leave your farm to your children, they should be included in the planning so you are both leaving them a legacy and NOT leaving them a headache. You may find that your children’s goals are different from yours, and there may be factors they are facing which will affect your planning goals. If your farm plan includes creating a Corporation or LLC, you should plan to have regular family meetings with all the owners to discuss business, provide financial reports, answer questions, and plan for the next year. Involving family members (even off-farm family members) early and often connects your children to your farm, and increases the likelihood of the farm continuing on to succeeding generations.
4. How should I include key employees in succession planning?
If you have a key employee that shows good leadership skills, can work independently, is experienced and knowledgeable in the farm operation, and has expressed a desire to own a farm, this employee may be a candidate to include in your succession planning. While you may not want to “give the farm away,” you can plan for a gradual buy-out and transfer of ownership as you retire and the key employee assumes more responsibility, authority and ownership.
5. How do I treat on-farm and off-farm children fairly?
Realize that fair treatment does not necessarily mean equal treatment. If farm sustainability is a goal, on-farm children may have helped create that estate, often at below-market wages, despite working long hours in a high risk profession with the expectation of making up some of those earnings through inheritance or buy-out later. Non-farm children may have left the farm to pursue other goals . Farm children often share the goal of wanting the farm to stay in the family and may be responsible for caring for parents in their later years. Circumstances and goals change so parents should not presume that they know the feelings of either on-farm or non-farm children.
6. How do I ensure that my estate has enough assets to pay taxes and preserve the farm?
A diversified asset base will help insure that there are sufficient liquid assets to pay any taxes while protecting the farm. With advance planning, you can take advantage of discount valuation and special use valuation tools available in the tax code which can reduce or eliminate estate tax.
7. What is Discount Valuation and Special Use Valuation?
Discount Valuation – A qualified appraiser can apply a discount to the value of your business assets based upon three factors: Lack of Marketability, Minority (Lack of Control) Interest and Built-in Gains. Farm businesses are well-suited for application of Discount Valuation in estates, for all three reasons. Can reduce the taxable value
of an estate by 15-35%.
Special Use Valuation – IRS Code Section 2032A permits valuation of real estate based upon its actual use, rather than its “highest and best” use (the typical standard for appraisals). Use of this technique comes with certain limitations – must not be sold and use of property must not be changed for 10 years after the estate is administered
are the two most significant limitations. This can be applied particularly in “transitional areas,” where farm ground borders on developed or urban areas.
Planning for the 5 D’s of Farm Transfer Failure
Part 1: Death, Disability, Disaster, Divorce
Even the best plan will fail if the Dreaded 5’s make an unexpected appearance. Unfortunately, people tend to plan for the best scenario, not the worst. Here are a few tips to help you expect the unexpected, or at least minimize the effects.
Death: While the whole point of Farm Succession Planning is to include the inevitable passing of the current generation to the next generation, early death of a parent, or an untimely death of a child can complicate Succession Planning. Some questions to consider:
$ What will happen if a key family member dies before the succession plan is implemented?
$ Will off-farm options (like life insurance) help ease the cost or tax consequences of an untimely death?
Disability: Disability can strike the parent generation and the child generation, with different consequences. Farming is one of the most dangerous occupations in America, but disability can come in many forms.
$ Actively minimize farm-related risks by making us of modern risk assessment tools available
from risk planners, insurance companies, and equipment vendors.
$ Determine whether Aincome protection (disability insurance) will be a cost-effective tool.
$ Cross-train the next generation, so that some continuity can be maintained in the event of the disability of a key employee or child.
Disaster: Natural disasters (fire, tornado, flooding), and man-made disasters (voltage strike, environmental spill, livestock virus outbreak) have widely-varied sources, but equal devastation. Not only can farm income be compromised, but farm infrastructure can be destroyed or damaged beyond repair. Heavily-leveraged and poorly-protected farm operations can be a single disaster away from losing the farm.
$ Be aware of the changing legal and regulatory environment, both from a disaster recovery and from a compliance standpoint.
$ Consider both prevention management and crisis recovery plans to prevent complete loss of the farm in the event of a disaster.
Divorce: Death is inevitable, but divorce is much more common than we like. In a Farm Succession Plan, you need to consider your spouse, your children’s spouses, and your grandchildren’s spouses. Even with a Prenuptial Agreement, there is no guarantee that your (or your child’s) ownership in a farm operation will be secured from a divorce settlement. At the very least, the divorce of a child could cause an expensive buy-out of a spouse’s legal interest.
$ Encourage your children to have a prenuptial agreement. Make sure they understand the nature and importance of their ownership in the family farm operation.
$ Realize that in the event of a divorce, part of the farm resources may be diverted to buying out a divorcing spouse.
Part 2: Disagreements
Of the 5 D’s, the most heart-breaking is Disagreement. At its worst, disagreements can last for generations, keep families a part, and destroy a family farm. In multi-generational farm operations, there are two types of disagreements: Disagreements between the on-farm and off-farm family members and disagreements between on-farm and on-farm family members. While disagreements are a natural part of family interactions, there are ways to watch out for stress points that can devolve into serious family conflict.
Disagreements occur as families grow in number. When one farm’s resources are not sufficient to
support all the farming members, disagreements about management of the farm’s resources readily
Disagreements occur as families move off the farm. When generations no longer have a strong connection to the family farm, they do not understand the financial risk and large dollars involved in managing a farm business. If they have personal consequences on their tax returns, they may feel that the farm is more of a burden than a blessing, and begin to resent the farm or an on-farm sibling. They may also see an on-farm sibling as having disproportionate favor or benefit by living on the farm, and resent the perceived closer relationship between the on-farm sibling and parents.
Disagreements also occur when one generation begins transferring assets to the next generation. The speed (or lack of speed) of transfer, the allocation of farm assets, and the expectations of how the next generation should use the assets can cause friction within a family.
Communication is the key. Parents should strongly encourage their children to speak up about their expectations and goals in participating in the family farm, even if it means that a child wants no part of the family farm. In planning transfer of the farm, parents and on-farm children need to clearly
understand the financial implications of continuing the farm operation, either with non-farm sibling, or
by cashing out non-farm siblings.
Develop a path back. If the farm succession plan does not work, or if it causes unintended consequences or misunderstood expectations, be prepared to unwind the plan and move in a different direction. There always needs to be an out for family farm succession plans that are not working.
Emphasize the family bond over the business. The farm is just real estate and equipment. Your family is irreplaceable. When family members feel that the farm is more important than the relationships, it is more difficult to resolve conflicts.