Most of the people who came to a workshop on intergenerational farming had one question on their mind. How can they be fair with their children in their estate planning?
What general principles could apply as parents contemplate estate decisions?
Gather information. Get trusted legal and financial planning advice to know what options you have. Discuss with your advisers the emotional issues in the family to help them understand the complete picture of what you want to accomplish. Your own retirement goals, needs and security are the first and foremost considerations.
Be open. The process should be open and fluid to allow the gathering and exchange of information. Many children don't want to appear greedy or self-serving by bringing up the subject.
By asking them for their input and ideas, you as parents open the door to your children's involvement. Knowing what they want or how they feel is better than imagining what they want or feel. It is helpful to know how their thoughts and special requests about the estate might be in conflict with each other.
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Asking for input doesn't mean that you are going to do what they want or that you have to make a decision before you are ready. Sometimes a decision will be easier after key developments in your own or your children's lives have been reached.
Be clear about what you are waiting for. Be specific about any provisional decisions you have made. The families that are farming with you need to know that their interests are being protected. The worst estate plan is no plan at all. Don't wait until it is too late. Things happen.
Describe each scenario for estate planning depending on which parent is the surviving spouse. The agreements need to take into account various contingencies including remarriage, disability or the need for long-term care. Invite the children to ask tough questions. Do your homework.
Present your plan. When you have settled your plans, discuss it with each child and get their reaction. It is better for them to hear it from your lips and know it was your decision than to wonder if a sibling had pressured you or had undo influence.
You can defend your decision to them. You might hear something that might make you change your mind. It may seem awkward, but they will accept your decision and be at peace with it if you work it through with them. This is better than leaving them with a cold document that ignores their wishes or thoughts completely. If you aren't open, your estate could cause a rift between your children.
Fair doesn't mean equal. The children who have made their living apart from farming don't need equal treatment in the estate. The estate isn't love. Gifts can be made based on need rather than love.
Giving unequal portions of the estate doesn't mean you care for them less or more than another. It means that you have limited options when the estate isn't totally liquid and that part of the assets are tied up in an ongoing business.
By giving land to off-farm heirs, you create a conflict of interest. Farming heirs would want to conserve the assets and cash flow while off-farm heirs may want to convert their inheritance into cash and dividends. Children who haven't been your business partners and have differing goals will be forced into a potential long-term, divisive business arrangement. By giving land, you split the farm up into units that may not be big enough to generate enough income to sustain the farm family.
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The families that have worked with you have put in their own sweat equity.
They depend on a viable farm for their future farming careers and deserve to have an unequal portion of your estate.
By farming together, you made a commitment to a farming business that was meant to continue in the future after your death. Many children who counted on that commitment find themselves hurt and betrayed by an estate settlement that is based on a simplistic principle that fair means equal.
Fair is fair, not equal. If there were no joint business ventures involved, you could come a lot closer to equal.
Be fair to the non-farm heirs. You can deed property as you go.
You can encourage ownership and leasing arrangements that make your farming heirs less dependent on your estate. The more independent they are in their farming operations, the more freedom you will have in your estate decisions.
If they don't need your farm, then it can be treated like any other disposable asset.
If you don't give land what do you give? Savings, insurance benefits, investments that can be converted to cash. Hopefully you will have had the good fortune to provide an estate that extends beyond the farm and the farm assets.
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If not, a specific buy/sell agreement with fixed terms and dates may provide a way for a farming heir to buy out the non-farming heirs in a timely and orderly fashion.
What is fair? Fair is darn tough to figure out. It's a puzzle that can only be solved through aggressive investigation and open communication.
For more information on estate planning for farmers and ranchers, you can visit Val Farmer's Web site at www.valfarmer.com.
You can order Val Farmer's latest book, "Honey, I Shrunk the Farm," by calling 1-888-568-6329 or order on-line at www.jmcompanies.com.
Val Farmer is a clinical psychologist with MeritCare in Fargo, North Dakota. He specializes in rural mental health and family business consultation.
