Most farmers don't shut down their tractors at 65, hand over the keys to the chicken coop and move to the South to improve their long game.
Instead, they can be found on their farms well into their 70s or 80s, tending to the land that they love.
The problem is that many fail to plan for the day they will no longer be able to work their farms. And that can be a problem for their heirs.
The nation's 2 million family farmers have unique estate-planning issues that, if ignored, can result in a farm's being split up among different owners or having to be sold outright to pay off estate taxes or creditors, according to advisers.
Unfortunately, family farmers are notoriously bad planners.
“Many times, the older generation tells their kids, "One day, this will all be yours,' but they don't put it in writing,” said Paul Dillon, an estate-planning attorney in Corinth, Maine.
Boosting the need for more-aggressive estate planning, advisers said, has been a run-up in the value of farmland. Fueled by healthy commodities prices, farm prices have been rising steadily and in some cases, rather sharply.
Nationally, the value of farmland increased 16% in 2005, 10% in 2006 and 3% to 5% since then, according to the Agriculture Department. Meanwhile, Midwest farmland prices jumped 22% in just the past year, according to Federal Reserve Bank of Chicago data.
TIES TO THE LAND
Although many of the challenges that farmers face in estate planning are the same ones encountered by the owners of other types of small businesses, they can be exacerbated by the strong emotional ties that lifelong farmers have to the land.
“It's like passing on a family business, but it goes farther than that because the owner of a printing business, for example, doesn't have the same emotional attachment to the ground as the farmer. It's further complicated by the fact that farmers are often asset-rich and cash-poor,” Mr. Dillon said.
“Farmers don't think about their retirement like most Americans,” said financial adviser Mike Trenholm of Monmouth, Maine. “It's sometimes a challenge to get them to give up the reins.”
But the right financial team, which should include an adviser, an estate-planning attorney, an accountant and an insurance expert, can help the farmer pass on the land to the next generation or sell it outright and create an income for their final years.
The first step is a family meeting to identify whether there really is someone who wants to take over running the farm and is willing and able to invest in the venture, Mr. Trenholm said.
If there is, the advising team crafts a plan that allows for the person to inherit the farm, while still providing an inheritance for the rest of the family.
“If a farmer gifts one son the farm, a life insurance benefit could be left for other siblings to offset the value of what would have been their share of the farm,” said Chuck Carpenter, president of Miles F. Carpenter Insurance Agency in Skowhegan, Maine, which has been insuring farms and their owners for nearly 85 years.
Farmers also need to consider how to structure their farm businesses to make the transition to the next generation easy, estate attorneys said.
One of the better options is to use a combination of trusts and limited-liability companies, said Geoff -Germane, a lawyer with Kirton McConkie PC in Orem, Utah.
Each child could be given the same economic interests in the company, but the child seeking to run the farm would be identified as an active owner with a management role and would receive a salary for that work, he said.
"DEFAULT PLAN'
If these structures aren't set up ahead of time, the “default plan” is that the state will split the property among the heirs, and the farm gets fractionalized among many different owners.
“Once you fractionalize the farm, you expose it to the future financial crisis of any of the owners,” Mr. Germane said.
If any owners were to fall on hard times — be it from a car accident, health crisis or gambling debts — a creditor could force the sale of that owner's fraction of the farm, which really means selling the whole farm “because you can't really just sell one-sixth of it,” he said.
As far as retirement income, many farmers haven't planned for that properly, either. They typically try to reduce their income and their tax bills by buying equipment and depreciating that over the years. Few see the need for pension-type retirement plans.
“A farmer's idea of tax planning has always been to buy a $300,000 tractor,” said financial adviser Brett Belliston of Contango Capital Advisors Inc. in Provo, Utah.
Mr. Dillon has been working with Richard and Melvina Perkins of Charleston, Maine, on estate planning since the late 1990s, when they purchased their 650-acre dairy farm from Richard's uncle.
They expect to transfer operation of the farm to their son, Aaron, over the next few years. The couple will retain ownership of the farmland in order to receive a rental income, Mr. Dillon said.
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