Dear Michael: We have seen our farm operation grow tremendously in the past few years. Along with that growth, our incomes have risen but our expenses have also risen considerably. The net incomes are still higher than they’ve ever been before, but we always worry something could change. My husband has continued to buy machinery and land with this income, but sometimes I worry about the debt load we are now carrying.

Dear Michael: We have seen our farm operation grow tremendously in the past few years. Along with that growth, our incomes have risen but our expenses have also risen considerably. The net incomes are still higher than they’ve ever been before, but we always worry something could change. My husband has continued to buy machinery and land with this income, but sometimes I worry about the debt load we are now carrying. We now have more debts than when we were in our thirties and forties and we’re closing in on sixty. My husband said it’s not a problem because our debt ratio is much better than it was back when we were younger. What do you think? – Worried Wife.

Dear Worried Wife: I agree with your husband with his assessment of the debt to asset ratio. It seems, if you’re not getting larger these days, you’re going backwards.

However, all of this sudden growth has exposed a lot of gaping holes in people’s estate plans. Of course, that’s referring to those who actually have estate plans. Others have estate plans, but these plans are so outdated – and by ‘outdated’ I refer to plans older than five to seven years – they don’t accommodate the new numbers of today’s farms.

In essence, this newfound growth – and income – has created a bit of a ‘Superman’ mentality for many farming men. Many feel they’ve worked and worked and now, suddenly, it’s all paying off – finally! There’s this feeling of both giddiness and apprehension. It’s a little akin to what a lottery winner goes through – you’ve never seen these numbers, or dollars, before and really don’t know how to handle it.

As I stated before, the last five years has left a lot of gaping holes in their estate plan.

For example, a client came in to visit with me and he had over one million six hundred thousand in debts – about half on machinery and half on land. When I asked his wife what she would do if something happened to him short-term, she looked at me with a ‘darned if I know’ look. This man carried about one hundred and fifty thousand dollars in life insurance. They had a farming child who wanted to take over.

The problem is this. If Pa Farmer dies suddenly – farm accident, sudden illness, etc. – Ma Farmer was going to be dealing with all of this debt all by herself. His solution? He told her, if something happened to him, she could sell the grain held and the machinery to pay off the debt on the machinery.

Seems like a good idea until you factor in two things. One, when Ma Farmer suddenly sells all the grain in the bins to pay off the debts left behind, she’s going to have to pay income taxes on the sale. There was seven hundred thousand dollars worth of grain and she would have two-hundred and eighty thousand dollars of taxes. That will leave her a little short of where she needs to be. Pa hadn’t thought about that.

Two, if she sells of most, all, or a part of the farm machinery to pay off the debt, what’s Jr. going to do as far as continuing to farm. Is he going to farm with only half of the machinery – or is Jr. supposed to take over the machinery debt and pay Ma Farmer rent on land? What about the remainder of the machinery? Is he going to rent it from Ma, buy it out over time, or what is the plan? I’ve had many situations like this where it all gets dumped in Ma’s lap suddenly, and it’s usually chaos for four to five years – all because Pa didn’t go out and buy some cheap term insurance to pay off the loans.

He’d pay another twenty thousand for crop insurance without blinking an eye, or buy another five hundred thousand in machinery, or more land – but he didn’t want to spend two thousand a year for term insurance? People have just lost their perspective – a common thing during times like these.

Another issue is if Jr. is farming and Ma and Pa have an antiquated will, how is Jr. going to afford to buy out a one and a half million dollar line of machinery and fifteen to twenty-five hundred dollar acre land from his siblings? Or conversely, if Jr. gets the land and machinery, how do Ma and Pa explain to the other children that one child is getting millions of dollars in assets, but they will receive a share of Ma and Pa’s savings, retirement plans, household goods, etc. resulting in an inheritance that is one-tenth or one-hundredth of what Jr. received from the estate?

These have always been problems with estate planning over the years. But with the recent sudden large appreciation in just about everything in farming, it’s really widened the gaps. Same problems, much bigger numbers to deal with – and people aren’t dealing with it very effectively. 

To date, people are still spending money on many things, but they are failing to spend money on the most important thing – necessary planning to accommodate these larger numbers to sustain growth, to protect the growth and to ensure the future.

Worried Wife, I hope your husband regains his perspective soon and remembers to take care of you, and to protect the farm for his farming child. He’s just having a little too much fun right now to do what really needs to do.