Admitting that they don’t have many assets except their farm and the hard work they provide, Junior Roop and his wife Merry of Washington, Kan., eagerly drove out to a seminar on a cold mid-March evening to learn how to keep their farm successful and begin the process of estate planning. Although Merry’s breast cancer has been in remission for five years, she’s concerned about insuring financial stability for her husband, and the future of their farm.
“I’m 57-years-old now, and once you go through a life-changing event, you think about this,” explained Merry Roop. “If I ever had to go into a nursing home, what would my husband do? Junior is 60-years-old, and we just look out for each other,” she added.
The Roops are also pondering the future of their farm, since neither their daughter who lives in Bryan, Texas, nor their son who lives three hours away near Kansas City, has expressed any interest in taking over their parents’ farm.
“If our daughter could wake up at 10:00 a.m., then maybe she’d be interested,” Merry joked.
Junior and Mary farm 1,300 acres of corn, wheat, soybeans and alfalfa, and have another 1,200 acres of grass, as well as a cow-calf operation in Washington.
“We have a will, but we need to talk to someone about a trust,” Junior said, after listening to the speakers.
The public workshop offering “12 Steps To Keep the Family Farming,” and “The Basics of Estate Planning,” was sponsored by the River Valley District of Kansas State University Research and Extension Service in North Central Kansas, and was a big draw. The Roops joined 75 others at the American Legion building in tiny Linn, Kan., Tuesday, March 12.
Setting the stage with a stream of financial guidance and common-sense approaches to achieving a successful transition within the Family Farm, a prominent university farm Program Coordinator teamed-up with a Kansas Attorney, to provide a wealth of knowledge to make a family farm successful.
Based on 12 steps to make transition planning successful, Duane Hund, Coordinator of the Farm Analyst program with Kansas State University’s Department of Agriculture Economics in Manhattan, Kan., presented his tried and true tips which he frequently uses, when arranging meetings with families. He then sets-up a specific plan geared to that family.
First and foremost, the first three steps involve what matters most in life and determining the people who we hold dear.
“Failure to establish mission statements and goals, can often result in misunderstandings,” Hund said. He recommends asking questions such as: what do I want to happen when the family farm transitions to new management, what do I need to happen, as well as, what do I hope happens, and even, what do I fear might happen with a new transition.
“If goals are written, they bring meaning to people, who are more likely to achieve them, because now they see what the goals look like.”
Step Four involves evaluating what Hund calls, your own Human Resources.
“The biggest mistakes result when family members in a farm environment don’t put people in the right roles where they’re comfortable,” Hund said.
“I guarantee you, if a son doesn’t like to mess with the cows, he won’t do well. It’s important to evaluate each person’s strengths. While one son may have been excellent in agronomy, he may not have an interest in having a livestock herd; it might not be his thing. If they’re having issues, or trying to figure out how to do it right, I try to dig through the conflict and help people figure out why there’s not a successful transition. I always suggest they go through all the steps first,” said Hund, who has a diversified farm and cattle operation.
Under Step Five, Hund notes that a common mistake is the retiring generation not yet being willing to let go of the reins.
“The farm successor needs to be able to make decisions, even if it becomes a learning experience. A simple organizational chart which diagrams the current-decision making system, and another chart showing the transition, is a great tool,” advised Hund.
Steps Six and Seven involve analyzing where the family stands financially. Is the business profitable, solvent, liquid and efficient and can it repay obligations? Hund recommends developing an inventory of the farm resources, such as land, machinery, buildings, financial resources, community support and people.
Steps Eight and Nine cover a ‘SWOT’ analysis.
“Focusing on S.W.O.T.; Strengths, Weaknesses, Opportunities and Threats allows families to determine management strategies, including strengths and weaknesses of the business. Which ones make their business competitive, what they do better than anyone else, and what can be improved,” said Hund.
Step 10: Developing a business plan for the farm, communicating the plan to lenders, investors and partners, as well as family members.
Step 11 refers to Estate Planning and Retirement Planning, and what Hund calls the Business Entity Buffet.
“There are choices when considering the legal form of the business, and professional legal help is recommended. Security and communication of plans are important for everyone involved,” said Hund. He also recommends thoughtfully considering the people important to you, and to the farming operation.
Don’t forget about the son who stayed home and made the family farm-his life’s work, cautions Hund.
“It’s especially important to realize, that son, who stayed home and made farming his livelihood, will suddenly be in his 50s one day, and taking on the family farm. In the estate planning, be careful not to just toss out a 25-percent stake, to him, because with off-farm brothers and two sisters, suddenly the siblings may wish to sell-off, and now that farmer might be looking at a 75 percent mortgage to pay off to the brothers and sisters. Now you’re risking/losing the legacy that’s been handed down! And, the son farming is now resigned to a lifetime of debt,” Hund emphatically concluded.
Hund helped resolve a similar scenario. Working with a particular family, Hund advised the parents to purchase life insurance for their daughters. The parents agreed, and willed the family farm to the son who had been working much of the ground.
Finally, the 12th Step: Putting the Plan into Action, concerns who will take the lead on various aspects of the business. It’s important to keep promises and respect for the retiring generation, while allowing management to be passed on to the next generation,” suggested Hund.
K-State financial experts have helped more than 1,000 Kansas farm families. Hund also enjoys working with the FinPack financial planning and analysis system; which provides tools to use farm records to make business analysis, long-range planning and cash-flow planning-easy. Hund recommends Kansans contact their local county agent or an ag lender.
Just like the many cases he’s worked on, Hund recommends families work with him first to devise a plan, then take that plan to an attorney.
That’s where Forrest Buhler comes in.
Buhler, an attorney with Kansas Agricultural Mediation Services, delivered the latest legal goods and new state laws in a presentation on “The Basics of Estate Planning.”
“It’s important to know what your documents say,” advised the Kansas lawyer. He recommends farm families preparing to meet with a lawyer, first gather-up vital information that their attorney will need, including: Personal information such as family members’ names, birth dates, social security numbers, and the real estate; including the type of property and size, location, year acquired, how it’s titled and the market value.
Buhler also recommends searching for the following documents to place in a folder and take with you, as well:
Bank and savings accounts with account numbers and bank names, stocks, bond and other securities, life insurance information and policy number, trusts; the type, trustee, beneficiary and who established the trust. Also, mortgages and other accounts receivable, the year acquired, value and person who owes you, liens against personal property with a description and name of creditor and date due, as well as other unsecured notes, real estate taxes, and any unsettled claims.
“Don’t forget about retirement benefits; pensions, profit sharing, individual retirement accounts, social security and any other financial information such as income last year, current income, salary, annuities, rents, dividends, taxable gifts. Above all, know where important papers are kept, such a spouse’s will, deeds, insurance policies, contracts, and pension benefits,” recommended Buhler.
Not withstanding being an attorney himself, Buhler recommends interviewing more than one attorney, to help set up estate planning.
“I recommend a team approach, with the attorney coordinating the effort. Ask your attorney what part of their practice is devoted to estate planning. You can also inquire of a CPA (Certified Public Accountant,) or your bank,” suggested Buhler. “And, since we’ve seen that tax laws changed over the past year, it’s a good idea to update your plan every three to five years.”
It’s also advisable to become familiar with legal terminology of estate planning.
“For example, one term you may hear about is a Life Tenant, who in this case isn’t like a landlord/tenant relationship, but rather the life tenant shares property interests with the remaindermen; a term for people designated to receive the property after death of that life tenant. While the Life tenant manages and receives income from the property, he or she generally may not sell or mortgage the property without permission of the remaindermen. So, a life tenant, in this case, is a person who has use of, and income from the property, while they are alive,” explained Buhler, adding, “And that property automatically passes to the remaindermen, on the death of the life tenant.”
Besides sole ownership of property, there are also two basic types of co-ownership; a Tenancy in Common and a Joint Tenancy With Rights of Survivorship, with the main difference being how that property passes upon death. In a Tenancy in Common, the interest of the co-owner who dies is passed to that co-owner’s heirs. In a Joint Tenancy, the interest of the co-owner who dies, automatically passes to the surviving co-owner.
There are also two basic types of trusts that people may set-up during their lifetime; a living trust established by the grantor during his or her life, and the testamentary trust, established by a will, which becomes effective on the death of the grantor.
“Also fairly recent in origin, is the Transfer on Death Deed. The transfer of property listed in the deed, only occurs upon death of the owner. It can, however, be revoked, or the beneficiary can be changed at any time during the owner’s lifetime. The title automatically goes to the beneficiary on death of the owner,” said Buhler, adding, “This is usually done for real estate.”
Lastly, Buhler shines light on probate, a legal step under state statute which establishes succession of ownership to a person’s property, after he or she dies. Buhler notes probate is a public process involving filing a will with the District Court, which handles the administration of the will. In contrast, probate is not required for a trust. If there is no will or trust, then probate may be necessary to establish who owns the particular property after a person dies.
“We are here to assist families in planning their farm succession, and managing the conflict that sometimes is associated with that,” said Buhler. “We use our farm analyst services through Duane Hund, and our mediators to assist the family through that process.”
Displaying a colorful sectional showing slices of a proverbial financial ‘pie,’ Gordon Dowell, Gift Planning Officer with the Kansas State University Foundation, informed the crowd that the largest percentage of Americans who have estate planning documents are: 51 percent who have any estate document, followed by 35 percent who have a will, 29 percent of Americans have set-up a power of attorney, and just 18 percent set-up a trust.
“Are you a planner,” Dowell inquired of the audience. “Have you planned tomorrow’s dinner? This spring’s crops? A Summer vacation? But do you have your estate plan, and what would you like to accomplish with your money, that’s meaningful to you?” he asked, advising that he provides education on how charitable giving fits in with a distribution plan; whether it goes to the children, K-State, or others.
Meanwhile, the Roops are drinking in all this information, and are ready to go forward with beginning their planning process.
“I will work until I die,” Junior Roop commented. His wife Merry, who admits she’s a planner, took copious notes.
“I actually grew up on a farm,” said Merry. “But I only learned about what I know from Junior. The problem is ... he only started teaching me at age 48, and I’m still catching up,” Merry smiled.
“But since we do everything together,” Merry added, “We’ll work on this together, too.” ❖
“We still run things on good old fashioned customer service. A lot of the reason why we can compete with bigger feed stores is because we treat people how they want to be treated, and they come back because of that.”
~ Danielle Nater, daughter of Dennis Nater, owner and operator of Northern Colorado Feeder’s Supply