Pork Checkoff sponsored Pork Academy seminars at World Pork Expo to allow producers to learn about industry topics from leading experts. Melissa O’Rourke, an attorney and Farm Management Specialist at Iowa State University Extension, shared 10 farm transition and estate planning mistakes to avoid.
1. Procrastination and Waiting for the “Perfect Plan”
The old saying holds true, failing to plan is planning to fail. O’Rourke mentioned 89% of individuals do not have a farm transfer plan. The “perfect plan” for your operation does not exist, so there is no reason to hold off on ensuring your estate and farm transfer plan is updated, organized and constituents know where to find the content.
2. No Plans for Substitute Decision Making Due to Health Complications
Designate additional people in writing, preferably from the younger generation, to make decisions if there are mental or physical medical conditions of the main beneficiary that inhibits their ability to make decisions on the farm owner’s behalf.
Learn more: Ag Decision Maker- Substitute Decision Maker, Iowa State University
Plan for Substitute Decision Making — Melissa O’Rourke
Keep your goals, paperwork and assets clear and organized to ensure family members can find everything they need when there is a change in operation ownership. Host regular meetings complete with agendas and notes to update legacy terms and ensure there are no secrets in the family.
Plan Family Meetings — Melissa O’Rourke
4. Treating People Equally Rather than Fairly
There are individuals in the family who may have different goals and move off the farm. With the help of legal professionals, host honest conversations with multi-generational family members about the operation’s future and how they can be part of the legacy fairly, but not necessarily equally.
There is value in sweat equity. Comprehend the intentions of all family members (generally spouse, and then children) who may receive a portion of the farm’s value and their desire to actively take part in farming operations.
5. Lack of Comprehension for the Inheritance
Eighty percent of Americans do not receive an inheritance, and the average inheritance is $49,000 for the remaining 20%. The inheritance may be much larger for farm families, so it is important to understand its capacity and ensure all paperwork and policies are updated.
6. Not Knowing the Value of their Assets and How they Own It
Identify these assets in the farm’s portfolio to recognize the terms of “keeping the farm in the family” and how long the family tree branches will extend:
- Liquid assets
- Tangible and intangible assets
Answer these questions when reviewing your assets:
- How is all real estate owned?
- How are all bank accounts, CDs, investments and other intangible assets owned?
- Do you know how all pensions and life insurance policies are owned, and who the beneficiaries are?
- Do you know how you will distribute or dispose of tangible personal property?
Keeping It In the Family — Melissa O’Rourke
7. Failure to Research Federal and State Inheritance Tax
Check the terms of gift and inheritance taxes, unified credit and lifetime exemption conditions impacting farm families. Farmers may need to reduce the size of their estate for tax purposes.
Gifts and Inheritance — Melissa O’Rourke
Along with meetings to review documents, do a show and tell session to ensure everyone knows where the printed copies of documents are stored.
Resource: Estate Planning Questionnaire, Iowa State University Extension
9. Failure to Build a Team of Professionals to Help with the Planning Process
There is a team of professionals helping you with finances each year, so why not have a team guiding your farm’s transition? Meet with an attorney once per year to review documents, build relationships and initiate life changes and goals.
10. Stopping the Planning Process
Planning never stops since life keeps moving and goals change. Individuals should not be embarrassed to ask questions and request pricing rates to their professionals.
Watch the Full Video Recording
Keeping the Farm in the Family with Melissa O’Rourke
Iowa State University Extension and Outreach
Farm Management Specialist