In October 2013, as chair of the Agricultural Law Section of the Nebraska Bar Association, I participated in a panel discussion with two other lawyers who were having similar experiences with the drastic increase in litigation relating family farm and ranch succession. We spoke to a packed room of Nebraska lawyers who were looking for answers to their similar problems. In a 90 minute presentation, we were only able to identify some of the major issues for the group. (The presentation slides, containing some of the scenarios that I anticipate discussing later, can be found here .) Here is a list of some of the common problems that we discussed:
1. Old and outdated estate and succession plans that do not reflect current circumstances. Examples:
- C-Corporation never converted to S-Corporation
- Division of land in kind resulting in nonsensical configurations
- Failure to adjust to new land values
- Focus on taxation avoidance at the expense of common-sense succession planning
- No viable exit strategy for heirs.
2. Inertia: Everyone failed to act when Dad and Mom were alive or had capacity to act.
3. Problems with the “Equal is Fair” Approach:
- Fails to protect “THE FARMER” if it is the plan to reward him or her fairly for long hours of work to build up the farm or ranch, often at great personal sacrifice.
- Ranch or Farm given to heirs who neither understand it nor care about it.
- Reflects a failure to communicate a direction and a plan to the next generation.
- It fails to deal with the effects of greed: The “It’s my money and I want it now” mentality.
After identifying these common problems, we spent some time talking through some hypothetical family scenarios as a panel.
In preparation for that presentation, I was reminded of my old Ag Economics professor, Dr. Ron Hanson (see his teaching page at http://agecon.unl.edu/hanson). He is one of the first people to introduce me to the concept that “Equal is Not Always Fair” when it comes to the problems that families sometimes have relating to the succession of the family farming operation. As a young college student in the late 1970’s I didn’t appreciate the full import of his story until much later in life. Dr. Hanson has a compelling personal story about how a family dispute in his own family resulted in the loss of his family’s farm, and the loss of his own family in the process. He has counseled farm families and made presentations to farm groups on this topic for many years, some of the presentations can be found in video format online. This one is long, but worth your time: http://vimeo.com/69201726 (part 1) and http://vimeo.com/69209575 (part 2).
Planning for the future is hard work. In order for your team of advisors to help you through the task, you need to ask yourself and your family members some hard questions: How is your farm or ranch succession plan? Have you planned for the future of your farming or ranching operation? Has your family communicated in a frank and candid way about this issue? What do you think your heirs will fight about? Is co-ownership of the farm or ranch assets at the next generation the best alternative? Should your children even be in business together at all? Can they get along well enough to split the cash rent? Do you have a child in mind as a successor for your farm or ranch?
When we sit down with our clients to discuss this matter, our goal is to help you plan in a way that will help your family avoid spending tens of thousands of dollars on lawyers fighting with each other in the future. You might wonder whether that makes good economic sense for a law firm. Foremost, we do it because is the right thing to do for our clients. Sadly, we already know that despite our efforts, for each successful plan there will be several more cases in which there was no plan, and we are still going to stay very busy fighting those fights for clients who will be spending tens of thousands of dollars on lawsuits.
Understand that estate planning is a part of, but not the same as, succession planning. Let us know if we can be of assistance in your estate and succession planning efforts.