Passing on the family farm is legally complicated. One Missouri widow and several estate-planning pros offer hard-earned experience and advice.
There’s an old saying about farmers: you’re land rich and cash poor. You hold most of your assets in land and equipment. And that situation creates complex problems when it comes to passing on the farm to family.
Tammy Shafer will never forget June 27, 2009, the day that her husband, Roger, died in a pickup accident. The couple had no estate plan or will. Tammy agreed to share her story so that others might learn how to prepare for a similar situation.
“Before, I had limited involvement in the farm,” said Tammy, who lives near Green City, Missouri. “I worked at a job in town, raised the kids, helped out where I could and cosigned bank notes, but Roger was the decision-maker. He didn’t want to worry me with the financial part of it.”
Today, Tammy continues to work as a medical technologist in Kirksville, 30 miles away. She manages the farm finances in her spare time. Tammy and her family continue to grow row crops, hay, crossbred beef cattle and contract-raise weaner pigs.
“Our goal was always to farm with the kids some day,” Tammy said. “Fortunately, they are all working together, and they want to help.”
All three children stepped up after the accident. Son Logan, 25, suspended his own construction business and returned home. Trevor, 20, dropped out of college to help. Daughter Gentrie, 23, stayed home through the fall semester before moving to Texas A&M University, where she’s working toward a masters degree in animal science and beef reproduction physiology.
All three want to farm on their own. Tammy hopes that they can carry on as the fourth generation on the Shafer family farm. If so, they’ll need to expand; the current operation can’t support everyone.
The school of hard knocks
Raised on a farm, Tammy knows cattle, but it’s been a challenge to learn to budget and make a profit. “Roger was a very hard worker,” she said. “He always made it work.” Now Tammy’s the money manager. Gentrie helped Tammy set up spreadsheets to track earnings, expenses and other financial accounts.
Roger had worked with his brother, Brent, to row crop, mostly corn and soybeans. “Brent’s been instrumental,” Tammy said. “Without him, I’d be lost.” Today, she’s out of the row crop business; Logan and Trevor continue to raise crops with Brent. Roger’s parents, Leon and Kathryn, are retired but help out when they can.
“I wish I had known more about the financial aspect,” Tammy said. “I understand Roger’s thinking: the finances were his job, and he did his job well. But it’s important for women to know things like who owns the equipment and who we rent land from.”
The Shafers do rent most of the land they farm. In Missouri, farmers rent 46 percent of all acres farmed; nationally, farmers rent 55 percent of the land they cultivate. As with many farmer-landlord relationships, the Shafers depended on verbal agreements. Since women generally live longer than men, widows own a lot of farmland.
Tammy recently asked a landlord, a widow, to sign an agreement that spelled out the lease price. The neighbor balked at the idea of a written contract, but Tammy reassured her, “It’s not for us; it’s for our kids.”
“I thank God we work with wonderful landlords,” Tammy said, adding that her boys and Brent understood most of the arrangements.
The Shafers had talked about making a will or estate plan but never acted on the idea. “We figured it won’t happen to us – it happens to other people,” Tammy said. “It was naive thinking, and it could have been a disaster.”
It could have been worse
Roger’s death was an incredible loss, but Tammy was lucky in other ways. She didn’t have to pay estate taxes. Joseph Koenen, an Extension specialist from Unionville, Missouri, helped lead classes that Tammy recently attended on farm management. Koenen explained that Federal law for 2009, the year Roger died, allowed a spouse to inherit up to $3.5 million in assets without paying estate taxes. And for this year, if something happened to Tammy, the children could inherit an unlimited amount without paying estate taxes. Unless Congress acts soon, the current law will expire in 2011, reverting to a previous law taxing inheritances of $1 million or more.
Since Tammy cosigned on all bank accounts and loans, she didn’t have to go through probate. Probate is a court-run process by which legal title of property transfers from the deceased to beneficiaries. It can take six months or more for the court to determine if creditors must be paid before assets become available to beneficiaries.
Tammy Shafer has learned a lot about succession and estate planning. We asked her, along with an attorney, a judge and Extension specialists, to list steps people can take to meet their financial goals. Here’s what they recommend.
This list isn’t complete, nor will all items apply to every situation; laws in each state differ, and this article is not intended as legal advice. Farmers should consult an attorney and other experts to determine what’s best.
But anyone can begin with baby steps. “First you set goals,” said Cynthia Crawford, family financial education specialist for Saline County and the Central Missouri Region for the Extension Service. “If families aren’t clear about what they want, you can’t honor their goals.”
Crawford, who works from Marshall, Missouri, suggests that people start by filling out a few forms. In Missouri and many other states, one can make bank accounts and other investments such as stocks and bonds payable upon death to one’s spouse or another beneficiary. For assets with titles, people can make the asset titled on death to the beneficiary of their choice. Crawford suggests including only the spouses’ names, not children’s, so the surviving spouse maintains control of the asset.
Extension’s Joseph Koenen helps lead Annie’s Project classes. “Farmers’ assets are complex,” he explained. “That’s why it’s important to do estate planning.” He sees farmers creating trusts to deal with untitled assets like equipment, grain and livestock. Land can also be covered. “With a trust, you avoid the probate process, where attorneys usually take a share of the personal property’s value.”
Titles to land and equipment listed both Tammy’s and Roger’s names, except for one vehicle, and Missouri allows the surviving spouse to inherit one vehicle without paying taxes or going through probate. Plus, Roger had some life insurance, although it wasn’t enough to cover expenses left behind.
After Roger passed away, Tammy set up a trust and formed a limited liability corporation (LLC) to protect her children in case of her death. “That’s a huge concern to me — that the farm will continue in the Shafer family,” she said.
Things are getting better, but Tammy’s still a long way from enjoying life again. “I know God has a plan,” she said. “He never said it would be easy. But we live in a wonderful community that’s prayed for us and supported us.”
On the day of the accident, beans needed planting. Hay was cut and on the ground, waiting to be baled. “The neighbors came in and did all that for us,” she said. Looking back on the last year, Tammy says that for her, farming means more than just money. “I’m bound and determined that we’ll all get along. We’ll hold this family together.”
Estate planning training
Estate planning became a hot topic at a Women in Agriculture Conference that Crawford organized last winter. Hugh Harvey, probate judge for Saline County, warned participants about what he calls the Vulture Thing. “If you don’t have estate goals, the one person you don’t want to handle your estate will swoop in and take over,” he said. “I see more broken families in the courtroom now with second and third marriages, and more fighting between spouses and children.”
Karla Klingner Diaz, an attorney in Columbia, Missouri, with Value Added Legal Solutions, speaks on estate planning for Annie’s Project. She explains that under Missouri law, no one can disinherit a surviving spouse even with signed estate-planning documents. The issue becomes more complex if a farmer remarries and has children from more than one marriage. “If the husband dies first, kids from his first marriage may not inherit the farm,” she said. Farmers can begin transferring assets before death to assure that they meet their goals and minimize taxes. Estate plans become critical when minor children are involved.
“Farming is more emotional than other businesses, because land is more emotional,” Klingner Diaz said. “You see appeal after appeal in law books related to land. Farm estate fights can be a thousand times worse than the worst divorce.”
To fend off family feuds, Klingner Diaz suggests that parents share succession goals at a family meeting. “Parents want to treat children equally,” she said. “That’s hard if one of the kids farms and the others want an equal share of assets. But being fair doesn’t always mean being equal.” Sometimes the farm won’t support more than one child, and parents may want to reward the child who has worked on the farm.
Klingner Diaz admits that many are intimidated by the idea of consulting a lawyer. “They think they have to know what they want before we meet. We start by asking clients to tell their life story and what prompted them to schedule the appointment. Do you have kids, for example? As the attorney, I’ll worry about the details and what plan makes the most sense, because no one family has the same story and goals.”
Farmers need to find lawyers they’re comfortable with – attorneys experienced in working with farmers. The lawyer should understand farm payments and other federal programs. “When farmers die without an estate plan, I have seen legal fees run into tens of thousands of dollars for family members,” Klingner Diaz said. “This is when clients pay by the hour and litigation, especially litigation driven by emotion, is expensive in terms of fees and costs. Estate plans are much cheaper and significantly less stressful on the family in the long run.”
For more information on estate planning, here a flyer on the web, but keep in mind that it’s based on Iowa state law, which likely differs from requirements in other states.
Editor’s note: This article originally appeared in the online edition of Today’s Farmer. Thanks to Nancy Jorgensen and the editors for permission to repost it here.