Case #1332 – Letting go of 'what was'.
Robert and Kelly Fuller set up a meeting with me regarding their estate plan.
"We're getting close to sixty and we don't even have a will in place. We have some debts but our assets have grown considerably in the past ten years. Our son came back to work in the operation although he's still working off of the farm. We have two other children. I guess the main reason we haven't done anything is we don't know quite what to do?”
"You see, our son is quite young,” Kelly explained. "Just married five years with two kids. Our other two children should be treated fairly if something should happen to us. We don't want to leave them out. And yet, in order for our son to make it, he's going to need most or all of the farm and ranch. We just don't feel like there's enough to ‘go around’.”
Robert and Kelly showed me what they had in assets and liabilities; quantifying is the first step in estate planning. Based on their assets and liabilities, they were in a strong position with about a ten percent debt to asset ratio.
However, if they had no will or a will that divided the assets between all of the children, their son would have been left with all of the liabilities and only one-third of the remaining assets. With a quick calculation, it was easy to see that the son would be in about a sixty percent debt to asset ratio upon their death, even if they left the machinery to him.
Then Robert came up with the all-time end-of-the-farm line I hear almost all the time: “Well, we started with less than nothing and we made it.” I've heard this line umpteen times in my career and I always want to turn to the farming child and yell, "Run!”
"We had to buy cows from my folks and eventually we bought the land on a contract for deed from dad. If our son receives this much money (which on paper was a considerable amount), he should be able to make a go of it. He can rent the land from his siblings, buy out their share of the cows and he should make it, just as we did,” Robert stated.
I think somewhere deep down inside all farming parents there is an overwhelming sense of pride when they came from a very lowly situation, pulled themselves up by their bootstraps, and became a success. Most elderly couples today had to work with difficult parents, through many difficult times (the ’80’s) and they have a real sense of well-deserved pride of what their farm is today.
Because they are so proud of this prize, many parents feel like their farming child should have to go through the same process of suffering, of worrying about crops, about farm prices and inputs, and “if they work hard enough like we did” they too will enjoy the fruits of their choice of agriculture as a career. This is not an abnormal human feeling to want the next generation to ‘prove themselves' before handing over the reins to the kingdom.
The fact is today the average family cannot get by with a half a beef every six months, vegetables from the garden canned for the winter, and selling enough to keep shoes on the kids. It was a nice time, a much, much simpler time for certain when farms transitioned in generations before.
Today's farms are not communal acreages producing just sufficient food and support for its inhabitants. Today's farms are big businesses and subject to big business obligation and rules. For example, if their son walked into the bank and said to the banker, "I'm seventy percent in debt and I need an operating loan, please” he's going to get a cup of coffee and a cookie, but no loan. His farming career is over before it's begun. Just ‘working hard enough' is not going to keep this business going.
People need to adapt to the thought of how things were to how things are in agriculture today and plan accordingly. What your parents did for you isn't going to work in agri-business today. Hanging onto the thought of how your Dad and Mom did it is really just hanging the farm out to dry.
Wake up. Realize the incredible value in your farm operation and make the best business decisions as to how this business is going to survive.
Let go of what was – this is what it is now. Welcome to the big leagues!
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