Dear Michael: We have been blessed over the last few years with good crops, good prices and the ability to go out and improve our farm situation with new machinery and building purchases. Our son has been with us right along and he's added part ownership in machinery, buildings and the land we've added. He's certainly devoted his life to the family farm. We have two other children and we have some savings and some term life insurance we'd like to leave to these two. We still haven't put together a will or estate plan since the kids were young? Where do we start?
At this time of year, Thanksgiving, it's good to give thanks for all of the blessings we've received in the past decade. We've gone from a struggling industry to an agri-business powerhouse. Due to drought conditions across the country, crop prices remained at record highs and, for the most part, we had good to great crops.
In retrospect, this would have been the decade to bring your son even further along in the farm operation. By moving some of the production to his name, and having him pay for the machinery in total, we would have avoided a lot of headaches down the road for him.
With joint ownership of 'some' of the machinery and 'some' of the buildings, we throw a 'mixed bag' into the estate planning process – especially if you should die prior to redoing your estate plan. Nature abhors a vacuum and estate planning abhors a 'mixed bag' of ownership.
Machinery is a little easier to deal with as they are mobile units – but you still have to have something in the will as to how your farming child is going to gain possession of the machinery he wants in the event of your death. Perhaps he wants some of the machinery but not all of it. Perhaps he wants all of it. It's a discussion that needs to be held – and it has to be 'what if something happened to me today – how would Jr. get the machinery he wants and needs to continue'.
Many people do estate planning from the perspective of 'Well, when I'm old and retired I won't own any machinery at that time'. In other words, the project themselves into the future ten to twenty years and do their estate planning from there.
A good estate plan plans on what happens if you die tomorrow, what happens if it's in two-five years and what happens if it occurs ten to twenty years down the road.
You need to put verbiage in the will today regarding these transitory assets – just in case you are not here – and if these assets have been transferred by the time of your death, then these passages will just be ignored in your will.
By the way, this is normally something we settle upon dad's death in his will, Putting all the machinery and other transitory assets that Jr.'s going to be using past Dad's death into Mom's name just makes her life all that much more miserable. How is she going to know if Jr. trades the tractor, the seeder, the rake, etc? What value should she receive for your 'joint' investment into these assets. Back when machinery was one hundred to two hundred thousand dollars in value and falling each year, it wasn't a big issue. But with the value of used machinery holding and overall values increasing to the hundreds of thousands, this just isn't a spot Mom is going to feel comfortable handling.
Then you have joint ownership of some of the buildings with Jr. You had better make certain that Jr. has a way to obtain the ownership of the other half when you die. Unlike machinery, any buildings permanently affixed become a part of the land and the deed to the land upon which the buildings sit now passes ownership of the buildings. If Jr. gets a one-third share in the deed to the land, his investment into the buildings is gone.
Again, it's good to get these issues cleared up upon Dad's death.
Eighty-five percent of the time, men die before women – and by an average of eight to ten years. That's eight to ten years of Mom dealing with the repairs on the buildings, the liability of the farmstead, the care, upkeep and maintenance of these structures and – again – not where you should leave her.
Each asset class – machinery, buildings, grain held over, land, livestock – has to be discussed between you, your spouse, and your son as to what happens if something happens to Dad.
Without a plan, it's likely Mom will be left in the crosshairs between the child farming and the children not farming. As she ages, she'll become more and more susceptible to standing up to her children and seeing your wishes through. Right now, you've got all the power. When you're gone, she's going to be outnumbered and out-gunned.
Give thanks for all of the good things you've received in the past decade, but don't waste these gifts by leaving it up to chance or time to resolve these issues for you. We all know, as good as we've had it now, it can get just as bad just as fast if we don't plan properly..