Farm Estate Planning – Why Are Survival Rates For Farms So Low?

• “Why does my family need farm estate planning? Our children will get an equal share of everything.”

• “We did our estate planning many years ago and we have written a detailed will.”

• “We’ve explained everything to our children. We don’t need a will or estate plan to divide our assets among them.”

• “I don’t think I’m rich enough to need an estate plan.”

These are typical reasons why farming families engaged in agriculture or ranching may neglect farm estate planning or avoid it. However, to paraphrase Benjamin Franklin’s famous observation, there’s nothing as certain as death and taxes.

Time flies and before you know it, you’ve entered the Golden Years and the next generation does most of the work on the farm and makes many of the important decisions too.

Is Estate Planning Essential?

While you’re still in the best of physical and mental health, it’s a wise move to think about estate and succession planning. This is to ensure that the farm or ranch you’ve put your blood, sweat and tears into survives and thrives after you.

You may think that the best way to protect a farm is to farm it – but the harsh reality is that even in the closest of family relationships, rifts can and do occur.

Some children may seek life and career outside of the farm, while others would prefer to stay on. In such a situation, the stay-on child may not have the resources to buy out the others.

Apart from death, it’s also important to think about your own retirement, medical emergencies, how your spouse will cope after your demise and how you can put aside money for these situations.

The major benefits and aims of estate planning are:

Smooth Transfer: This is the foremost aim of estate planning for your farm or ranch. You need to ensure that the transfer of ownership and management of the land and the business side, and any other assets goes smoothly and swiftly so that there is no interruption to the business. Succession planning helps the next generation to understand their rights, duties and responsibilities after your time.

Taxes: Planning reduces the imposition of unnecessary taxes. There are estate and gift taxes that may be imposed during the transfer of the estate. These taxes are subject to major and minor changes and you need to speak to an expert on these. State and federal taxes may differ. Some states have tax exemptions. Speak to your family and your attorney before you make a will, trust, or large gifts.

Future Needs: Estate planning helps to secure the financial security of the coming generations. Without this, the state will distribute assets and liabilities as it deems fit. You can pass on the cost of medical care, funerals, settlement costs, etc to the estate rather than the beneficiaries.

Protect the Farm: You can ensure that the farm/ranch stays as agricultural land and not be sold off as commercial/residential development. The next generation can develop their own management skills and abilities if they are assured that the land is protected.

Why Are Survival Rates So Low?

Farming families are no different from others. Children may grow up and leave, or stay. Some may have marital issues, emotional or physical disabilities or illnesses. Others may develop certain harmful habits and addictions. Children can seek careers other than farming, even while they want to stay on the farm. Some may get involved in litigation that puts the farm at risk.

Many farmers simply don’t have the time to plan for the future. As the seasons come and go, they’re engaged in a variety of tasks that take up all their time and effort. They seldom want to think of a future without their beloved land. While they’re willing to put in all the back-breaking work and give their lives for it, they don’t want to think of their own death or how to preserve this hard-earned asset.

Studies show that 90% of farming operations don’t survive the transition to the next generation. 

Reasons for Low Survival Rate:

Division of Assets: Many people confuse the terms “fair” and “equal.” They may transfer assets such as livestock, machinery and equipment, buildings and other things that are vital to run the farm business to the stay-on farm heir. However, if this heir doesn’t handle the business operations, it can be difficult for the one who does. Sometimes, the value of the farmland/ranch vs the value of the business assets may be unequal. This can lead to disputes and bad blood in the future, with a final break-up of the farm and the assets, resulting in the original farm not surviving.

Lack of Experience: Farming parents are hard-working and independent. They prefer to do most of the work themselves and many would like their children to have a better life than their own. They may insist that the children focus on education. This means that when the transition happens, the next generation lacks the necessary experience, knowledge, skills and information. They are not familiar with the marketing, business aspects, taxation, laws, technology and labor requirements that are needed for successful operations. It’s important to teach and involve the next generation, give them real duties and responsibilities while you’re still around.

Relationships: The most common reason for low survival rates is the unraveling of relationships and family bonds when the older generation passes on. Unless the ties are sturdy and healthy, the goals are common and there is true understanding between the survivors, it’s the farm that stands to lose. When one of the parents or children pass on, the surviving spouse’s needs may change.

Lawsuits and Divorce: Litigation and debt can drain the farm business of value and also fragment it into smaller holdings. In the case of divorce and marital disputes, parts of the land may have to be transferred out. This can affect the survival of the whole. Dying intestate is a huge risk that owners take, because then it becomes a free-for-all, with legal disputes and state intervention taking their toll.

Lack of Transparency: In many cases, parents fail to convey their true wishes to the next generation. As a result, there is confusion about duties, responsibilities, rights and financial controls. This can destroy a flourishing farm business in a matter of months.