The vital role of succession, estate planning for farmers

Farmers are renowned for their resilience and ability to persist through floods, freezes and other less-than-favorable conditions. However, one obstacle that often poses a significant challenge for them is a lack of professional succession and estate planning.

Data from the U.S. Department of Agriculture (USDA) shows that while the average age of farm operators is around 57, only about 30% of family farms survive the transition to the second generation, with only 12% making it to the third generation.

Succession planning involves the orderly transfer of management and ownership from one generation to another, while estate planning addresses the distribution of assets and minimizes tax liabilities on the owner’s passing. With agricultural real estate accounting for more than 80% of U.S. farm-sector assets, according to the recently released USDA Census of Agriculture, effective planning can mean the difference between your farm’s survival or extinction.

Many farmers postpone planning because they think it is too complicated or time-consuming. Some assume there will always be time to arrange their affairs later without considering what might happen in the event of an accident, incapacity or change in family or financial circumstances. Others believe that everything is handled because they have a will. Without other estate planning documents like powers of attorney and revocable living trusts, a will is little more than a set of instructions that will still need to go through probate court, which can be a lengthy and expensive process.

Getting started with succession and estate planning does not have to be overwhelming. Every situation is unique, so it’s best to talk with a financial adviser to help create a specific plan for your needs. If you want to get started now, here are some things that can help make the process go smoothly.

• Take an inventory of assets, including business interests, checking and savings accounts, insurance policies, investment and retirement accounts, real estate and other personal property.
• Meet with your advisers to review your assets, beneficiary designations and other matters. Make sure your accountant prepares your individual and business tax returns and discusses the tax implications of your plans. Meet with an estate planning attorney who can review your assets, recommend any necessary advanced planning techniques, ensure assets are adequately funded and titled and execute the core estate planning documents.
• Consider a revocable living trust, which offers you full control during your lifetime, allows a successor trustee to manage your assets upon incapacity and death and avoids the time and expense of probate and court-supervised guardianship or conservatorship processes. You can leave your estate to your beneficiaries in payments at specific ages or with certain conditions and provide support for a disabled beneficiary without them being disqualified from Medicaid or other government assistance.
• Create a digital or paper folder with important professionally prepared estate planning documents and a list of assets and accounts with login credentials. Provide copies of pertinent documents to those named as fiduciaries. Keep original wills in a fire-safe location, such as a safe deposit box.
• Review your estate plan every three to five years or when major life or financial changes occur. Update your documents and share them with family and fiduciaries who need them.
• Remember that banks like Arvest have trust departments with the knowledge and experience to manage your farm when you are unable to generate income during your life. They can help settle your estate or continue to oversee your farm’s legacy, providing income to your beneficiaries.

For farmers, succession and estate planning are more than legal formalities. They ensure their land and assets successfully pass down to future generations, along with a way of life that has nourished communities and fed the world for centuries — and should continue to do so in the future. 

Editor’s note: Darin Drennan is a Wealth Planner on the Advanced Planning Team for Arvest Wealth Management, Member FDIC, FINRA, SIPC. The opinions expressed are those of the author.