By Jennifer Willhite
For The Republic
Crop production and livestock are the main focuses of a family farm, but succession and estate planning are integral pieces of seamlessly running a farm operation.
The United States Department of Agriculture indicates that nearly 70 percent of U.S. farmland is going to change hands in the next 20 years, said Kris Medic, Bartholomew County Purdue Extension educator for agriculture, natural resources and community development.
“It will change hands for different reasons, but much will because existing farmers are aging out,” she said. “The orderly transfer of that asset is really crucial within a family. And it is crucial for hanging onto the agricultural production land we have.”
If a transfer of assets does not go smoothly, there can be significant consequences that reach beyond the family.
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“A lot of people understand they have difficult choices to make,” said attorney Jeff Washburn, a partner with Sharpnack, Bigley, Stroh & Washburn in Columbus. “They don’t want to make those choices and hope the next generation will work it out, and that can be pretty dangerous sometimes.”
As a fourth-generation farm kid from northern Indiana, Washburn understands the intricacies of succession and estate planning, and how planning, or the lack of it, can affect families and future generations. He has conducted programs on estate planning for the local Purdue Extension office.
Often it is a matter of managing potential conflict within the family, he said.
“The biggest struggle people have to getting in to do planning is they are aware they have potential for conflict,” Washburn said. “And they might also be aware they need to make some decisions that aren’t necessarily equal.”
Feeling overwhelmed with the necessity to make such tough decisions can lead to procrastination. However, there are tools available to help minimize the potential for conflict and set a plan in place. The trick is taking it one piece at a time rather than getting overwhelmed with the big picture, he said.
“Most of the time it is an ongoing process because the conversation I have with people and clients is to learn what their goals are and suggest tools that will help them establish goals and start to understand those tools,” he said. “There are limitations. If we try to come up with a perfect plan for forever we will stall out.”
It is better to start with a five-year plan, then re-evaluate when that time is up, he added.
Tools can mean a variety of avenues to safeguard one’s assets, Washburn said. It could be a trust, a will, a limited liability corporation (LLC) or a different form of property ownership. Recent changes to tax law are proving beneficial when it comes to estate planning, he added.
First, there is no longer an Indiana inheritance tax, as it was repealed several years ago, he said. Secondly, the threshold for the federal estate tax was recently increased to a little more than $11 million per person. And, lastly, the federal tax credit can be portable, meaning it can transfer from one person to another.
“So the higher threshold and a portable tax credit have dramatically changed the number of estates that run into a federal estate tax problem,” Washburn said.
Medic said that both regionally and locally, people are all over the continuum when it comes to perspective and motivation to plan and take care of business. But it’s not a common topic.
Of the average 800 to 1,000 inquiry calls Medic receives in a year, only five to 10 are about succession and estate planning, she said.
“When people pick up the phone and ask about something like that, there has been a crisis or death,” Medic said.
One avenue that can ease the stress of approaching a loved one about making sure everything is in order is if one of the children is the executor or has power of attorney.
“They can start the conversation by saying, ‘Are there things I need to know?’” Medic said. “If that person has already anticipated the finite nature of their life to create a will, then the executor of the will can touch base with them and make sure they’re clear on what they want. If there is a lack of clarity, they can work on that together.”
Clarity among family members in estate planning is important, Medic said.
“If it is done well, it really helps pull a family together to work on a shared concern and task,” she said. “If it doesn’t go well, it has terrible consequences of estrangement and worse.”
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“The orderly transfer of that asset is really crucial within a family. And it is crucial for hanging onto the agricultural production land we have.”
— Kris Medic, Bartholomew County Purdue Extension educator for agriculture, natural resources and community development