Transition planning should be tackled early in life
It is a story estate planners hear too often. An elderly rancher passes away. His son, who is in his 50s, takes over the operation with no real ranching skills. The son seeks help from a neighboring rancher asking questions about when to wean calves and what shots to give.
He had spent most of his life as a glorified hired hand. His father had never let him make any decisions or taught him about ranch management.
Pam Olsen, who is an attorney, estate planner and Harrisburg, Neb., rancher, said it is a situation she sees too often as an estate planner. But, by developing a transition plan with a timeline, ranchers can transition control, decision-making and management decisions to their heirs without losing total control of the operation while they are still alive.
Transition and estate planning are good stewardship, Olsen said. Farmers and ranchers can spend a lifetime building and growing an operation, but the most important part of it is developing a plan to carry on after the producer can no longer use it and direct it.
Olsen encouraged producers to make good stewardship decisions by carefully developing a transition plan. “Transition means how you will pass on your assets when you can no longer use them,” she told them. “The question you should ask yourself during your lifetime is what your goals are as an owner, and where it’s reasonable. Find out what the goals are of those who operate with you, and who are not owners,” she said.
“You don’t owe your kids an inheritance, but you do owe them a plan,” she said. That plan should include a way of transitioning assets to the next generation who may or may not be related. Estate planning is a way for ranchers to spell out how they want their assets distributed, with consideration of the surviving spouse and on and off farm heirs. It can also minimize federal and state estate taxes and save on settlement costs.
A well planned out estate plan tackles the hard questions, Olsen said “The simple answer is not always the right answer. The right answer is not always easy or popular,” she said. Producers will need to address whether their surviving spouse is capable of taking over the management of the operation, if the spouse who passed away is not there to help. “What is their skill-set, interest level and capability?” she said. “Is there someone else who meets the needs of the surviving spouse, like a trusted employee?”
Producers should consider how they feel about their spouse remarrying after their death. “Consider what could happen to the assets from the first marriage, after you pass away, if your spouse marries someone with health, kid or credit issues. Is there some way to protect what you have built in that first marriage?” she said. There are ways to build those protections into an estate plan, Olsen said, but producers should talk about what those protections might be and how they would work. “You should also talk about what happens to your assets when you’re both gone,” she said.
KNOW YOUR ENTITY
Farmers and ranchers who have entered into entity agreements need to know what they say, Olsen said. “If you have an entity and you have an agreement related to that entity, you need to know how you own assets because it may dictate where they are going to go even if you haven’t intentionally planned for that,” she said.
Other agreements like joint tenancy, life insurance policies, payable on death certificates, and bank accounts will go to the beneficiary listed, no matter what the estate plan says. “These designations are in place, and decide where those assets will go regardless of what the estate plan says. That is why it is important to know what your assets are, what you own, and how you own it,” she said.
An estate plan will typically have some version of these documents in play. “You need to have a will, and maybe a trust. You should also have a power of attorney, so if you can’t make medical or financial decisions, someone you trust can make them for you,” Olsen said.
“The easiest way to determine who a power of attorney should be is by picturing yourself lying in a hospital bed. Your eyes are open, but you can’t speak. Who do you see at the end of the bed holding your checkbook, and does that person make your heart monitor speed up or stay steady?” she said.
Olsen told ranchers to look at estate planning as an opportunity to be creative. “It is important to speak with your planner honestly and candidly. Planning is only as good as the conversation that backs it up. Get help and make a plan that you want. If you don’t do something intentional, the state has a plan for you and will decide what happens to your estate. Either you think about this stuff and make a plan, or the state will do it for you,” she said. ❖
— Clark is a freelance livestock journalist from western Nebraska. She can be reached by email at email@example.com.