Legacy Planning

Non-Family Transition Plans: A Success Story to Take Notes From

Thu, 26 Feb 2026 14:50:34 GMT

For every senior rancher looking for an heir, there is an eager member of the rising generation trying to find ways to get started. The challenge? Getting the two parties to meet with their compatible counterparts.

Lydia Carpenter and her husband are an example of adapting your business and finding a member of the senior generation to build with instead of against.

How Did You Get Started in Production Agriculture?

“We started a farm business when we were in our 20s on leased acres. I grew up in the Red River Valley where land is quite expensive,” Carpenter says. “We decided that we were going to run a livestock operation, so we moved to the western part of Manitoba where agriculture is a bit more diverse and mixed. This is where we built our direct-to-consumer meat business.”

How Did You Find a Non-Family Member Looking for Heirs?

“We subsequently started buying heifers from an individual who was living in Alberta at the time,” Carpenter says. “He was originally from Scotland, had moved to Canada in 2000 and subsequently decided to sell the land in Alberta and move to Manitoba.”

She continues: “Before doing that, he had asked us if we were interested in working with him more closely. So when he moved here, he bought a farm not too far from where we were renting at the time. And then we started working together.”

How is the Business Structured?

“We run individual operations. We file our own taxes, and we’ve got separate businesses,” Carpenter says. “Both businesses are profitable, and we have similar structures in our business.”

Additionally, she explains: “We recognize that in order for us to be able to access land and build our security, we need some support from another generation. So, we started purchasing land to build our equity from him and his wife.”

Building trust is also a part of the business structure.

“Now we’re neighbors, and we are purchasing assets from him,” Carpenter explains. “Transitions take time, and it’s not the kind of thing that happens overnight, but a relationship builds over time along with trust and accountability.”

She says: “Over time we’ve recognized we are compatible and have similar philosophies around management.”

Q: What Else Goes Into Building Trust in These Types of Relationships?

“Trust is an interesting thing that ties into accountability,” Carpenter says. “Even business acumen can help build trust if you, as the rising generation, have the financial literacy, interest and good management practices to take on the business.”

She adds: “I think clarity of expectations is really important and then it builds over time. It’s not without risk to invest in somebody.”

She explains: “I think having open conversations about written agreements, business structure and general profitability of the business are important and trust is then built over time through general accountability.”

Q: How Can Other Members of the Rising Generation Find Opportunities Like This?

“If you are interested in a specific sector of production agriculture, go work in other areas of that industry and in those communities,” Carpenter says. “Additionally, be present at different events in agriculture and open about your goals as a young individual.”

She also says: “Don’t silo yourself in any specific production type unless you have really good reason to do so. Sometimes the opportunities around you are bigger than that.”

Q: What Are Some Red Flags to be Aware of in Any Farm Transition?

“Some red flags would be no desire to have written agreements,” Carpenter says. “Another one might be just general lack of financial literacy or poor money management — that can go for either generation.”

She also shares: “Another one can be people’s general health and well-being. Are you having compatibility issues because someone is really struggling with unresolved mental health or addiction issues? There’s going to be some interpersonal stuff that could be red flags as well.”

You can listen to the full conversation on the Casual Cattle Conversations podcast .

When Risk in a Crisis Becomes a Turning Point: Lessons from Top Producers

Wed, 25 Feb 2026 16:51:39 GMT

In a volatile agricultural landscape, risk is a constant. Weather, markets, input costs, succession issues, cyberthreats and pandemics all push farm families into uncomfortable decisions. During the “When Taking Risk in Times of Crisis Pays Off” panel at Top Producer Conference, six producers shared how they’ve navigated those moments — and what they’ve learned when the stakes were highest.

The panel, moderated by Rena Striegel, president of Transition Point Business Advisors in West Des Moines, Iowa, included: Edward and Rebecca Dalton, of Dalton Farms, Wakeman, Ohio; Chris Payne of 3B Hay & Straw, Ontario, Ore.; Wendy Alsum Dykstra and Heidi Alsum Randall of Alsum Farms and Produce, Friesland, Wis.; and Ron Rabou of Rabou Farms, Albin, Wyo.

Their stories spanned family tragedy, ransomware, COVID-19 disruptions, organic transitions and bold expansion moves — offering a candid look at what it really means to take risk in agriculture.

Here are five key takeaways from the conversation:

1. Crisis as a Catalyst, Not a Dead End

For several panelists, a crisis didn’t just test their operations; it forced a complete re-evaluation.

The Daltons describe being emotionally exhausted and financially stuck before a Top Producer event pushed them to question everything.

“We were floundering in agriculture,” Rebecca says. “We were not making any money, really. We were just doing it to do it and to continue that legacy. And we were to the point where, like, ‘why are we doing this?’ You know, we only have so many days here. We only have so much time here.”

After a series of family tragedies and persistent unprofitability, they made a bold move to transition about half their acres to organic production. The shift brought much-needed profitability and renewed purpose.

“The risk was I was going to quit farming,” Edward explains. “We needed something and a spark and to just want to farm again.”

In Wyoming, Rabou’s turning point came after the sudden death of his father and the unraveling of a complex family ranch structure. Walking away from a fifth-generation operation was emotionally painful, but necessary.

“We did a lot of soul searching, and I kind of came to the conclusion that the risk for me for not doing something was much greater than actually doing something,” he says.

Rabou and his wife started essentially from scratch, building an organic grain operation and a hunting enterprise, borrowing heavily despite having grown up in a “never borrow” mindset.

2. Numbers Matter — But They Aren’t Everything

A recurring theme was the importance of knowing your numbers while recognizing data alone cannot drive every decision.

“Knowing our numbers is what really helped us,” Edward explains. “If you know your own data front and back, when you really get into those tight situations that you need to be able to think and move… sometimes you just have to move, whether you want to or not.”

Recently, the Daltons made a bold move back to conventional production. The Daltons’ choice to step out of organic was a conscious decision to go against what the spreadsheet said, in favor of their family and team.

“Right now, when I’m hauling $12 beans instead of $40 beans, like we were for a few years, I’m not really happy with that decision, but it was too much time,” Edward explains. “We were losing time with our boys, and that ultimately is why we went back, even though we were making more money per acre.”

Rabou emphasizes having a clear philosophy about leverage: “I have no problem borrowing money on appreciating assets, but I have to be very careful about borrowing money on assets that depreciate.”

For him, land and infrastructure are long-game investments, and he admits he more often regrets the risks he didn’t take than the ones he did.

“I’ve never looked back and said I shouldn’t have made that investment,” he says. “But I have looked back a multitude of times and said, ‘Wow, I wish I would have made that investment.’”

3. Fear vs. Action: Moving When the Window Opens

Panelists agree that fear is often the biggest barrier to seizing opportunity — especially when decisions must be made quickly.

Oregon onion grower and packer Payne describes how, in the middle of a tense meeting, he and another young partner were essentially challenged to buy out older shareholders in an onion packing facility. They had seconds, not months, to commit.

His broader advice to producers now: “Don’t get caught up in fear. If you let fear dominate your thought processes, you’re never going to succeed.”

Preparation helps in those “15-second” decision moments, Payne adds. Continually learning, attending conferences and thinking through scenarios ahead of time gives you a framework so you’re not starting from zero when opportunity knocks.

Edward adds, “You absolutely know how it’ll go if you don’t try. If you’re not willing to try, it’s not going to work. You can’t move forward if you don’t do something or try.”

4. Cyberattacks, COVID-19 and the Power of Systems

For Alsum Farms & Produce crisis came in very modern forms: a ransomware attack and then the COVID-19 pandemic.

“At 3 a.m. one morning in October, I got a call from our IT manager that we had been hit with ransomware,” Wendy explains.

She explains recovery from the attack required all hands on deck, multiple external experts and months of work to protect traceability and keep product moving. The aftermath included layered backups, new server and email security, user training and an ongoing relationship with cybersecurity and insurance professionals.

Just months later, COVID-19 hit. With 90% to 95% of their business retail-focused, the Alsum team quickly formed a COVID-19 response group, redesigning workflows to keep employees safe and shelves stocked.

The sisters say one key result from COVID-19 was when another supplier faltered, the Alsums were ready to step up for a major retailer — turning crisis into opportunity.

5. Relationships as a Strategic Asset

Beyond capital and land, the panel underscores the value of relationships — with peers, competitors and buyers.

Edward, Payne and Rabou maintain a group text, often used when one of them is wrestling with a big decision.

“Have people in an industry that you can trust and communicate with,” Edward stresses. “There’s been days they’ve literally had to walk me off a ledge when I’m trying to figure out how to make a decision.”

In the potato and produce world, Heidi says, competitors often become collaborators when the chips are down.

“The nice thing about the potato industry and the produce industry in general that we’ve experienced is that it’s been very collaborative,” she explains.
Rabou adds he sometimes sells grain below top price to maintain long-term relationships and outlet security.

“Those relationships to me are more important than making the dollar in the moment,” he explains.

His broader warning to producers is to stop comparing your operation to your neighbors’.

“You really have to determine what works good for you as an individual, you as a couple, you as a business,” he stresses. “Stop paying attention to what everyone else is doing.”

The Bottom Line from Top Producers

Across all their stories, the panelists echoed a few core principles:

Know your numbers but also know your values.
Act in crisis — don’t let fear make the choice for you.
Be willing to pivot, even away from something profitable, if it no longer fits your life or strategy.
Invest in appreciating assets and in relationships, both of which can pay off long after the crisis has passed.

In short, risk in times of crisis isn’t just something to endure; handled intentionally, it can be the turning point that reshapes a farm for the better.

Overcome the No. 1 Challenge in Passing Down Your Family Farm

Mon, 30 Jun 2025 19:38:38 GMT

Between now and 2048, about $124 trillion is expected to exchange hands from older to younger generations in the U.S., according to Cerulli Associates, a Boston-based market research firm.

For perspective, that dollar amount is approximately five times the size of the 2023 U.S. Gross Domestic Product (GDP), which totaled $27.72 trillion.

How will farmers fit into what many people are calling the “Great Wealth Exchange” over the next two decades? Much of it is specific to land, according to the American Farmland Trust (AFT). It predicts 300 million acres of U.S. agricultural land will change hands in the next 20 years.

Based on $5,000 an acre for farm ground, Paul Neiffer, the Farm CPA, estimates that would be a transfer of between $1.5 trillion and $2 trillion in land from older farmers to younger generations.

“If you throw in rangeland, that’s another trillion, so $3 to $4 trillion at most is where I think we’re at,” Neiffer says.

The Reason Succession Often Fails

A common issue is that while 69% of farmers plan to transfer their operation to a younger family member, only 23% have a plan , according to AgAmerica Lending LLC.

But the No. 1 issue that trips up people in the succession planning process is most people – farmers included – focus more on the mechanics involved in transferring assets than on keeping their family relationships intact.

That’s according to Amy Castoro, CEO and president of The Williams Group, a family coaching and consulting organization. Her firm does relationship planning to help family members make sure they’re still speaking to each other after the wealth transfers.

Many times, she says, the friction in the transfer of wealth has little to do with money and material goods and a whole lot more to do with whether the family members involved felt loved.

A Formula For Success

The Williams Group did a 20-year field study and from that developed a formula for how people need to focus their time and energy in the succession process.

The company recommends spending:
60% of your time on building family trust and developing good communication practices;

25% preparing your heirs to take over the operation, laying the business and fiscal groundwork for the farm to continue under their leadership;

10% of your time getting on the same page about your family’s values and having a family mission;

5% of your time on the estate planning mechanics, the nuts and bolts of how the assets will transfer.

In addition, The Williams Group advises that you work with your heirs to:

Strike a balance between control and collaboration.
Embrace the next generation’s perspectives.
Bolster intergenerational solidarity.
Embed high-trust behaviors.
Co-design standards for readiness.

Start The Plan Sooner, Not Later

If you want to see your farm succeed with the next generation of family members, make sure you have the right structure in place – and set it up sooner than later. Don’t put it off, Neiffer advises.

Once you have a plan in place, you have a tool you can modify to fit what your family and farm need over time.

“Having a plan in place can help alleviate stress, even if things change down the road,” Neiffer says. “Keep in mind that farming is a dynamic business and your plan needs to be, too.”

Your next read: Big Questions Remain For Next Gen Farmers

It's Time To Lead: Strong Succession Won't Happen By Accident

Wed, 11 Jun 2025 18:38:24 GMT

Succession planning isn’t just a checklist item — it’s a defining leadership moment. As a farm or ranch owner, it’s time to stop waiting for the “right moment” and start leading with purpose. You’re not just passing on assets; you’re shaping the future of your operation. That means stepping into the role of leader with clarity, courage and commitment.

First, take a hard look at what kind of leader your farm needs. Are you focused on daily operations or vision and growth? Are you modeling strong financial discipline and decision-making? Are you addressing conflicts head-on and keeping your family aligned? Leadership requires more than technical skill; it demands the courage to tackle tough conversations, whether with partners, successors or family members. Great leaders don’t shy away from discomfort; they lean into it with the goal of building stronger relationships and a more resilient operation.

Communication is foundational. If your team doesn’t know what’s happening, how can they help move forward? Hold regular family meetings, define decision-making roles and ensure everyone understands their responsibilities. Avoiding conflict only leads to confusion. Structured, transparent communication builds trust and keeps succession planning on track. Communication is also how you build buy-in from the people who will carry your operation forward.

Leadership Isn’t Handed Over

Next, you must actively develop your future leaders. Don’t wait until you’re ready to retire to begin mentoring. Give your successors meaningful responsibilities now. Let them learn by managing projects, participating in financial discussions and handling day-to-day operations. Leadership isn’t handed over — it’s earned through real-world experience and demonstrated commitment. Every season serves as an opportunity to develop those skills and test readiness.

Set clear standards for advancement. Define what success looks like: required experience, education and financial knowledge. Make sure successors understand what it takes to lead and hold those leaders accountable. If someone isn’t ready or is unwilling to step up, be honest. Your farm’s legacy deserves strong, prepared leadership.

Succession planning is hard. Many families stall out due to fear, conflict or lack of clarity. But real leaders don’t quit when times get tough, they face challenges head on. If your planning has gone off track, reset. Re-engage your family, bring in outside support if necessary and commit to consistent action.

The future of your farm depends on your leadership today. Will you linger in uncertainty, or will you lead with confidence? Strong succession isn’t going to happen by accident. It’s driven by leaders who are willing to plan boldly, act decisively and invest in their next generation. Your family and your operation are counting on you. Be the leader they need.

Your Next Read — Quiet Crisis, Unfolding Rapidly: Big Questions Remain For Next Gen Farmers

Tick Tock: How Long Do You Need For A Successful Transition?

Tue, 10 Jun 2025 16:00:00 GMT

How do you know when it’s time to start transitioning your operation to the next generation? Rena Striegel, president of Transition Point Business Partners, says to aim for a decade.

“If we’re lucky, we’ve got that long. Sometimes we don’t, though,” Striegel explains. “Sometimes things happen and we have to move much quicker than that. An illness can escalate transition quickly. A disagreement can go from ‘We’re all good’ to ‘We’ve got to fix this right now.’ And sometimes lack of planning can cause an extremely difficult situation – particularly if someone wants to exit quickly.”

She says the fastest succession plan she has ever seen executed from start to finish was six months.

“That was so painful, I cannot even begin to describe how difficult that was to get four brothers to agree on a plan and ready to execute in six months when the first one wanted to be out,” Striegel says. “We did it, but only because that farm family really sat and hung in there. If one of them had lost his patience or his temper, that whole thing could have blown sky high.”

Striegel compares the timeline of your succession plan to landing a plane.

“Think about those flights where the runway is really long. The plane comes in, it touches down nicely, and it just comes to a stop, right? It’s nice and gentle. No problems,” she says. “If you think about those landings where it’s stormy, or the runway is short, they’re a little scary, they’re really abrupt, they’re very stressful, and they can kind of hurt. So, we want to give as long of a runway as possible to give everybody a chance to ease in.”

The 10 years you ideally have are broken down into this timeline:

Years 1-2: Assemble your professional team and make some of the biggest decisions. Understand your entities and reorganize assets if necessary. Update your documents.
Years 3-4: Work with the next generation to get them ready for the roles they will have. Practice good communication and iron out dysfunction.
Years 5-10: Begin actual transition of ownership.

What comes first during that ownership transition process will vary.

“Sometimes it’s operational first. You’re allowing successors to make some of the operating decisions. Then maybe it’s some of the financial decisions, maybe it’s marketing decisions, maybe it’s buying inputs, maybe it is selecting vendors. Maybe you’re letting them negotiate for equipment,” Striegel says. “Whatever it is, you’ve got to figure out what the timeline is to take things off of your plate and put it on to them, and to be really clear about that, so that we can develop successors in the right way.”

Transitioning relationships is also an important piece of the puzzle.

“When do you turn over the relationship with your banker? What about your lawyer or your CPA? When and how do we get that next generation involved in those conversations?” Striegel asks. “If we don’t transition relationships, what happens is the next generation has no relationships with the people that have been serving your family for however many years and when you’re done, so are they.”

She says there won’t always be a finite end date on the transition, but it’s important you feel confident about the progress.

“The main thing is to say, ‘Over this period of time, I’m going to start working with you to take this over’, make sure you spend time doing that, and then let it go with oversight,” Striegel says. “I always like to say, ‘You watch me do it, I’ll watch you do it and then you do it on your own.”

What to Know Before Hosting Weddings on Your Ranch

Fri, 16 May 2025 18:34:00 GMT

There is an increasing trend of consumers going back to their roots and connecting with where their food comes from. It’s even to the point where many are choosing to cross of the milestone of marriage on a ranch.

While the happy couple embarks on their new journey, ranch owners earn additional income that can help manage risk, supplement the ranch or even bring an entire generation back to the family land. But what goes into hosting weddings on a ranch and is it truly lucrative?

Jason Wrich and his wife are located on the western slope of Colorado and decided to take a leap into hosting weddings, retreats and family getaways in September of 2023.

The Wrichs are high school sweethearts who live on the family homeplace and always wanted to buy the adjacent ranch.

“When the commercial egg laying operations were looking into buying it, my wife said we just need to make something work and buy it,” Wrich says.

That’s where hosting events and guests came into their business model.

“The only way to cash flow the property is for us to utilize these additional revenue streams,” Wrich explains.

Additional structures for weddings and short-term rentals were already present and the property was also in compliance with all local zoning regulations.

“It was well suited for our plans,” he says. “We’ve just been doing updates to the buildings since.”

The initial challenge that came from this decision was paying the mortgage with no income in the beginning months. Currently, the beef business supplements the event business, but the event business is scheduled to cash flow in 2025, which gets the Wrichs closer to their goal.

“My goal is to get my wife out of her off-farm job because she has the vision and desire for this,” Wrich says.

The event business could also be a way to bring their kids back to the ranch if they choose that path in the future.

The success of this business has come through hard work, creating competitive advantage and leaving no resource unleveraged. The venue can host up to 250 people, has housing and camper hookups and is competitively priced with no upsells, resulting in people traveling five hours or more to begin their marriage on the ranch.

There is no commercial kitchen on the ranch and it is in a remote area, but that hasn’t hindered bookings. People simply get creative with smokers, grills and the kitchens in the short-term rentals. Additionally, caterers and food trucks can show up ready to serve wedding guests a delicious meal.

The self-serve farm store is also a guest favorite as it contains pre-made burger patties and beef cuts, pork, honey and other local staples.

“This has been a great way to grow our beef business as well,” Wrich adds.

Advertising for bookings has primarily come through word-of-mouth and the Wrichs’ own website.

“We haven’t had a single wedding booking from venue websites,” Wrich says.

Additionally, they’ve found value in hosting an open house for anyone to come and look at the venue or rentals.

One consideration ranchers need to make before deciding to host weddings or guests is how much interaction with people they desire.

“Many farmers and ranchers don’t like interacting with people all the time,” Wrich says. “Interacting with people is the main part of this business and you have to like it.”

Time management and having the heart for it is also incredibly important.

“I’m a milestone marker kind of guy, so to be a foundational portion of other people’s milestones is a blessing and we want to make their day as perfect as we can,” he says.

Listen to full conversation here .

Long-Term Care: Affording it Without Losing the Farm

Tue, 22 Apr 2025 10:45:05 GMT

Long-term care (LTC) is expensive, unpredictable and often not covered by programs like Medicare. For farmers who’ve spent a lifetime building an operation and want to pass it on, the rising costs of LTC present a real financial risk to the land, the farm business and the legacy.

How do we pay for long-term care without losing the farm? This question is one many farm families worry about.

“It’s one of the most common — and important — questions farm families ask when thinking about the future,” explained Robert Moore, Ohio State University Agricultural & Resource Law Program Attorney, in a recent release distributed by Ohio State.

Moore shared these facts about LTC costs and strategies:

The growing risk of LTC
Once upon a time, estate taxes were the biggest financial threat to the family farm. Today, that’s no longer the case. With higher federal estate tax exemptions, few farms owe estate taxes anymore. The real financial threat now? LTC costs.

LTC includes a wide range of services — from home-based personal care to skilled nursing facility stays — and most of it isn’t covered by Medicare. These services help people with chronic illness, disability or aging-related conditions. For example, assistance with dressing, bathing, eating or even just getting around. Care might start at home and eventually move to a facility. Costs vary by setting and service, but they add up quickly.

Here are a few important facts to help understand the implications of LTC on farming operations:

69% of people older than 65 will need some form of LTC.
Average LTC lasts about three years, with women needing slightly more (3.7 years) than men (2.2 years).
20% of people will need care for more than five years — these are the “outliers” most likely to face LTC costs that can jeopardize the farm.
In Ohio, a year in a nursing home will cost around $100,000 or more.
For a farm couple, those numbers can double — and the risk of outliving income and savings increases.

Can the farm handle it?
If you’re wondering whether your operation could survive those costs, it depends on a few things:

Do you have income (from Social Security, retirement accounts, rent, etc.) that could help cover LTC?
Do you have non-farm assets, such as savings or investments, to use before touching the farm?
Would you be considered an “outlier,” needing care for many years — and would your current planning handle that?

In most cases, a farm family can survive average LTC costs, around $180,000, without needing to sell land and other critical assets. But it’s the outliers — the five-to-10-year nursing home stays — that pose the greatest risk. That’s where planning becomes essential.

Planning ahead: options for managing LTC risk
There’s no one-size-fits-all solution. But there are strategies that can help reduce LTC risks and protect the farm. Here’s a breakdown of the most common options:

Do nothing
For some, doing nothing is a valid strategy if they have enough income and assets to cover even the worst-case LTC costs without risking the farm, but that’s rare. Most families should at least consider other options.
Gifting assets
Giving land or assets to heirs (usually children) more than five years before applying for Medicaid can protect those assets from LTC costs, but gifting comes with trade-offs:
1. You lose control over the assets.
2. The heir receives your original tax basis, which could trigger big capital gains taxes later.
3. If you need LTC during the five-year look-back period, the gift can cause Medicaid penalties.
Gifting can be effective — but it needs to be done carefully and early.
Irrevocable trusts
An irrevocable trust can protect assets while allowing some flexibility. You give up ownership and control, but the trust (managed by a trustee) holds the asset for your beneficiaries. If structured correctly and established early enough, the trust assets are shielded from LTC costs — and sometimes still qualify for a stepped-up tax basis at death.
But be warned: these trusts are complex, expensive to set up, and must be carefully maintained.
Wait-and-see approach
This strategy avoids doing anything upfront but relies on having enough income and savings to cover five years of LTC if needed. If care becomes necessary, assets are transferred and the clock starts. The gamble? If you can’t make it through the five-year penalty period, your assets might still be at risk.
Self-insurance
Some families choose to earmark a piece of the operation (a less productive farm, a savings account, etc.) to pay for care if needed. It gives flexibility and control, but it also requires discipline — and can lead to one spouse living more frugally out of fear the money won’t last.
Long-term care insurance
LTC insurance can cover all or part of the costs — and newer “hybrid” policies can include a life insurance component so the money isn’t lost if care isn’t needed. But these policies can be expensive and hard to qualify for, especially if you already have health issues. Still, they’re worth exploring with a good adviser.

So, what’s the best strategy?
The truth is, there’s no “best” option — just the best fit for your family’s goals, resources, health and timing. Some families will mix and match strategies. Others will lean heavily on one. The important part is that you understand your risk and make intentional decisions, not default to inaction.

Talk to an attorney and plan ahead
LTC is complicated. Medicaid rules, tax law, trusts and gifting penalties are full of pitfalls. One wrong move, even with good intentions, can backfire. That’s why it’s so important to work with an attorney who understands long-term care planning and farm operations. Also, start the conversation now. Don’t wait until a crisis hits. Planning ahead can make all the difference for your peace of mind today and for your farm’s future tomorrow.

Your Next Read: Talking About Transitioning Our Farms and Ranches

Four Ways for Farmers to Avoid Estate Taxes in 2025

Wed, 09 Apr 2025 18:11:17 GMT

Succession can be a very sensitive topic for farmers to discuss. Some farmers want their children to take over the farm and operate it in the same manner. Other farmers, either due to a lack of interested children or due to skyrocketing land prices, would rather sell the whole farm for a non-agricultural use such as neighborhood development. Regardless of anyone’s farm succession plan, everyone has at least one similar goal: minimize (or, ideally, eliminate) their estate tax burden.

Tool No. 1: Estate Tax Exemption
Generally speaking, an individual’s taxable estate includes all assets owned by that individual at the time of death, including assets owned through an LLC that the individual owns or through a revocable trust in which the individual is a beneficiary. So, if a farmer establishes a revocable trust that owned the LLC that owns the farm (a common probate avoidance-liability protection strategy), the farmer’s estate would still be deemed to own the farm, including its land (measured at fair market value), equipment, livestock, buildings, and so forth.

Unlike the other tools which will necessitate an attorney, the estate tax exemption is something that every taxpayer automatically utilizes at death. The estate tax exemption in 2025 is $13.99 million for individuals and $27.98 million for married couples. In other words, if an individual were to pass away in 2025 with less than $13.99 million in their estate, that individual’s estate would not be responsible for paying estate taxes. While Congress may change the law for 2026 and beyond, the estate tax exemption for 2026 is set to revert to pre-2017 Tax Cuts and Jobs Act levels, putting the individual exemption at approximately $7 million and the married exemption at approximately $14 million.

Even at these lower amounts, most farmers have nothing to worry about . Still, some farmers place estate taxes as their primary concern when conducting succession planning, so hopefully this first tool alleviates those worries.

Tool No. 2: Family LLCs
The estate tax exemption is reduced by any reportable gifts made during the decedent’s lifetime. In 2025, a donor must report to the IRS any gifts to individuals that are worth more than $19,000 and gifts to married couples that are worth more than $38,000. As such, a farmer can gift shares of their farm LLC to their children that are under the gift tax reporting thresholds over a period of time, ideally decades, to reduce their taxable estate once the farmer does pass away.

A few aspects of family LLCs are noteworthy.

The farmer should be gifting shares of the farm LLC that lack voting rights, which the IRS will view as less valuable than normal LLC shares, thereby allowing the farmer to gift a higher percentage of the LLC each year without exceeding annual gift tax limits.
Farmers with children who are married can conduct this strategy more efficiently than farmers with children who are not married. Moreover, the children who receive shares are not necessarily obligated to retain the shares – the children can sell the shares, including amongst themselves.

Tool No. 3: Internal Revenue Code 2032A
At its core, IRC 2032A allows for an additional estate tax exemption of up to $1.42 million in 2025 (i.e., thus increasing an individual’s estate tax exemption to $15.41 million and a married couple’s estate tax exemption to $29.4 million). Concisely, there are both pre-death and post-death requirements that must be met for the IRC 2032A increase to be utilized. The State of Washington Department of Revenue has a very readable frequently asked questions page on IRC 2032A which more comprehensively details the requirements.

With respect to just the high points, the decedent must have been farming the land for five of the last eight years of his or her life. Specifically, the decedent must have been providing ‘material participation’ on the farm, not just leasing land to third parties. The land and equipment used on the farm must also constitute significant percentages of the farmer’s estate. After death, the decedent’s ‘qualified heir’ (usually a child) must continue farming the land for the next ten years. Like the decedent, the qualified heir must materially participate on the farm – not just lease it out to a third party. If the qualified heir ceases farming operations at any point during those 10 years, the qualified heir will be personally liable for the estate tax burden and must pay it within six months of the deviation.

Tool No. 4: Irrevocable Life Insurance Trusts (ILIT)
For high-net-worth farmers who will not avoid the estate tax through the above tools, an irrevocable life insurance trust (ILIT) is an option. While both assets in a revocable trust and some life insurance policies are included in a decedent’s estate, assets placed in an irrevocable trust more than three years before death are not included in the estate.

For an ILIT, a farmer would set up an irrevocable trust, purchase a life insurance policy, and place that policy within the trust. When the farmer dies, the ILIT would receive life insurance proceeds that were excluded from the estate and distribute them to the surviving spouse or children in order to pay the estate taxes and otherwise provide liquidity to the farm.

ILITs can be very expensive, however. It will cost several thousand dollars for the initial document drafting to be done, and then anywhere from a few hundred dollars to tens of thousands of dollars for the annual life insurance premiums. In short, farmers who will never approach the estate tax exemption levels should not invest in ILITs.

Article written by Nicholas Brown.Brown, Nicholas. “ Four Ways for Farmers to Avoid Estate Taxes in 2025. “ Southern Ag Today 5(14.5). April 4, 2025

Your Next Read: Before Starting a Farm Transfer: A Farm Family Pre-Agreement

Before Starting a Farm Transfer: A Farm Family Pre-Agreement

Tue, 08 Apr 2025 19:59:44 GMT

Often, when speaking to groups of young farmers looking to return to the family farm, the first question I am asked is, “What is the best way to start a farm transfer?” In most circumstances, I typically recommend a trial period for both generations. Instead of jumping into a farm business partnership, the junior generation (future owners) and the senior generation (current owners) must agree on how they will work together and how rapidly the farm transfer process will progress. This is something I refer to as a “pre-agreement.”

A pre-agreement should contain at least three parts:

How to work together
How to develop the junior generation’s skills
How long a trial period is necessary

Keep this agreement simple; it is not a legal agreement but a precursor to one. Treat this like an internship opportunity, where both sides must work together to improve the skills and employability of the junior generation and benefit the business for both generations.

How to Work Together
Get both generations’ expectations out on the table. It is better to air one’s concerns ahead of time than have difficult situations result. These “working together” guidelines should include basic things such as pay, time off, and when people are expected to show up and leave work.

It is also wise to discuss how much autonomy or decision-making authority each person will have: will decisions be shared, or will the owner be the sole decision-maker? Also, both parties need to be realistic about working together, even discussing how to part ways amicably if things don’t work out during this pre-agreement process.

How to Develop the Next Generation
The next generation rarely has all the necessary skills and management ability to run the farm immediately. It is also just as rare that the senior generation will have all the necessary skills to be excellent trainers and teachers. The solution is to craft a development program that assesses the skills the junior generation needs and places the training responsibility on the senior generation.

If training the next generation is too tricky, don’t be afraid to look to outside sources for farm manager training, such as college degrees, cooperative extension programs, trade schools and associates degrees, and Farm Bureau young farmer and rancher meetings.

How Long of a Trial Period
The junior and senior generations must agree on how long this pre-agreement trial period will last. At the end of the trial period, plan to make a decision: continue farming together; modify the working relationship and progress the farm transfer process; or part ways in a friendly manner. Both parties must always be open to voicing and hearing concerns. For longer agreement periods, it’s a good idea to schedule routine checkpoints (at least annual, if not more frequent) to discuss how each generation is living up to their side of the bargain.

A Sample Pre-Agreement
A sample is provided here as an example of the types of things a pre-agreement could address. Feel free to modify this sample to fit your farm’s circumstances. If additional materials are needed, please talk to your local extension agent. You may also find general business transfer guides at https://coopcenterSC.org .

Article written by Steven Richards. “ Before Starting a Farm Transfer: A Farm Family Pre-Agreement. ” Southern Ag Today 5(15.1). April 7, 2025.

Your Next Read: Talking About Transitioning Our Farms and Ranches

Talking About Transitioning Our Farms and Ranches

Fri, 04 Apr 2025 14:51:23 GMT

Agriculture is a multigenerational industry, and it is a source of pride for many people in the sector. However, it is also a challenge we must navigate as we move our businesses from one generation to another. There are several hurdles to transitioning a farm business to the next generation, including legal, financial and social. Initially, we often turn to lawyers and accountants with our questions. However, perhaps the first and most challenging obstacle is the communication needed to bring our families together for these major decisions.

Research in the area of transition planning suggests that there are four stages to go through:

Development of a retirement plan
Identifying a successor, either family or non-family
Transferring managerial control
Legal transfer (lawyer and accountant)

Many farm transition planning workshops host a lawyer and/or accountant to answer questions and help farm families, but it might be interesting to know that this is the last step in the complete process and that we tend to get stuck on the first step more often than not.

The legal barriers to transitioning a farm require expert help and will vary by farm business, as will the tax implications for different asset bases and in different states. The financial barriers can either speed up or slow down transition plans as the available funds can affect the viability of bringing another person or family into the business. The social barriers will also vary and can include factors such as delaying a transition decision while waiting for a child to make career and/or marital choices. Marriages and divorces can complicate transition planning as well.

It can also be difficult for a farmer or rancher to give up their identity as a producer and control of business decisions by handing over the keys to another, even when it is the next generation of their family. The social barriers arise because farms are a unique intersection between families and businesses.

In conducting qualitative research in Alabama, we have talked to many farmers between the ages of 35 and 50 about their management styles and the issues that challenge them in their operations and lives. We are learning transition planning is at the top of their minds, but approaching the older generations who still own and/or control farm assets is not always easy. They don’t know how to start the conversation in a respectful way that keeps the line of communication open.

One way to start the conversation could be by encouraging them to attend a transition planning session put on by Extension or at a commodity meeting. Another is asking a family friend to broach the topic, reminding them that time can slip away from them if this gets put off indefinitely. Maybe the first step is as simple as forwarding a copy of this article and asking them to share a conversation over a cup of coffee. Whatever your approach, it is worthwhile to consider and discuss.

Article written by Taylor, Mykel, and Kelli Russell. “ Talking about Transitioning our Farms and Ranches. ” Southern Ag Today 5(14.1). March 31, 2025.

Your Next Read: 5 Conversations Every Family Should Have Before A Farm Transition

How Kansas Cattle Feeder Joe Morgan Shaped a Remarkable Story of Success Built on Strong Relationships

Mon, 10 Feb 2025 19:02:29 GMT

Growing up in agriculture, Joe Morgan developed an interest in cattle feeding when visiting an uncle who fed cattle in Texas. He even started feeding some cattle when he was still in high school. After graduating from lowa State University in 1973 with a degree in Animal Science, Morgan began farming, then the opportunity to manage a feedyard east of Omaha came in 1983. In 1985 he moved to Garden City, Kan., to manage Poky Feeders, growing Poky from its original capacity of 17,000 head to the current 105,000. Poky also partners on leased feedyards in Kansas and Nebraska and has extensive ranch holdings.

“I fed cattle as a farmer in Iowa, and my family had been in in the cattle business for a long time,” Morgan says. “I was always fascinated with the cattle market and the cattle industry, so when the opportunity came up for me to manage a yard, I took that avenue.”

Morgan says the concentration of the industry both on the packing side and feedyard sector has been the biggest changes he’s seen in his years in the business.

“Our customers have grown their businesses too,” he adds. “When we started, we had a lot of customers that had cattle, and today, those our customers handle a lot more cattle also.”

Poky Feeders averages about 95% customer cattle and 5% company-owned cattle.

“We’ve been really blessed,” Morgan says. “We have a large customer base that has grown through the years. We’ve got a great customer base with some that are third generation family customers.”

One of the largest challenges is labor, which Morgan points out everybody faces.

“I think more on the other side of the coin is we have strived really hard to help our customers be profitable and stay in the business, and that’s what’s allowed us to have the immense growth that we’ve had,” he says.

Making yard improvements and capital investments also help Poky Feeders be competitive.

“We’ve added on new facilities several times, including a brand-new mill in recent years,” Morgan says. “It’s a state-of-the art mill with lots of technology and computer systems. We’re always trying to look at a better way to feed the cattle, at a more profitable deal for our customers, and less cost to us.”

Joe is a long-time member of the Kansas Livestock Association and NCBA, serving on several committees over the years.

Morgan says it’s important to be involved in cattle organizations.

“These organizations have relationships with members of Congress, and keep the industry abreast of all the laws and regulations with EPA and help us in production agriculture,” he says. “A unified voice is way better than individuals trying to accomplish all that on our own.”

Being in the custom feeding business, Morgan is a big believer in customer service.

“If you help your customer make money, he’ll be your customer for a long time,” is advice he offers others. “That’s one of the things I have preached in my organization with my management people for years. At every meeting we have, we discuss how we’re going to help these guys make money, and if they make money, then we’re going to be successful.”

Morgan encourages young producers to find mentors and peers they can relate to and respect.

“Mentors can help them with their career and their own personal lives and make it a lot more enjoyable life,” Morgan says.

Watching the growth of Poky has been rewarding for Morgan.

“When I came in 1985 we had capacity for 17,000 and today we’re up 105,000,” Morgan says. “We’ve also diversified into other businesses.”

Morgan was instrumental in starting US Premium Beef and has served on the USPB board since 2007, currently serving as Vice Chairman.

In the late 1990s, Poky diversified into the pork business, with a sow unit on site and production in lowa and Minnesota. Poky has also diversified into long-term health care and memory facilities across the Midwest and other business interests.

While Morgan currently serves as CEO of Poky, and his son, Grant, manages the company.

“It’s definitely rewarding to have family be able to be involved for another generation,” Morgan adds.

The 3 Biggest Updates to USDA's Farm Loan Programs You Need to Know

Thu, 12 Sep 2024 15:40:27 GMT

With commodity prices down and farm returns expected to significantly decline , USDA’s Farm Service Agency (FSA) has released three major changes to its farm loan programs in an effort to increase the opportunities farmers and ranchers have to be financially viable.

“The analysis of what has gone into these rule changes is nothing short of tremendous,” says Zach Ducheneaux, FSA administrator. “Our team has poured over hundreds of thousands of loans in our portfolio and really identified some things that FSA can, should, and with this rule, will be doing better to support our producers and their economic viability in the countryside.”

The three most notable policy changes, which will go into effect on Sept. 25, include:

1. A new, low-interest installment set-aside program for financially distressed borrowers
According to Ducheneaux, this program was modeled after the Disaster Set-Aside program, but the difference is a borrower doesn’t have to be affected by a declared natural disaster in order to qualify. However, it’s important to note producers must be in FSA’s portfolio by the time these updates go into effect in order to be eligible.

“Oftentimes, what the producer needs is just a little breathing room,” Ducheneaux says. “We have the ability to do that for producers that are in our portfolio as of Sept. 25.”

The program essentially allows eligible, financially distressed borrowers to defer up to one annual loan installment per qualified loan at a reduced rate.

“When we set that payment aside, instead of accruing interest at the already established rate, it’s going to accrue interest at 1/8 of a percent,” Ducheneaux explains. “We’re really setting aside a payment, and it’s not going to balloon on you in a way it jeopardizes your operation as you’re coming to the end of that term.”

2. Access to flexible repayment terms
Some of these more flexible terms include smaller interest-only payments and longer loan terms. The idea behind this change is to allow producers to increase their working capital and give them the ability to save for education and retirement.

“Having a retirement fund built into this can help ease that generational transfer and help enable us to recruit young farmers and ranchers back to the farm,” Ducheneaux says. “Because FSA can make adjustments to our terms, it might help them step out of that job they’ve got in the town 40 miles away for health insurance and pay for that for their family on their own terms.”

He adds that the concern this could add more interest to the loan over time is valid, the point is to increase available cash flow for the operation.

3. Reduced additional loan security requirements
This update reduces the collateral requirements for direct loans from requiring available security equal to 150% of the loan amount down to 125%. One of FSA’s main goals with this change is to reduce the frequency borrowers need to use their personal residence as additional collateral for a farm loan.

“If you think back to 40 years ago, some of the most heart-wrenching stories you hear are when you’re losing the family home,” Ducheneaux says. “With this rule, if we do not need it to get to a one-to-one security position, we will not take the primary residence as additional security.”

In addition, FSA will release liens on collateral the borrower initially provided as additional security after establishing a history of on-time payments.

Additional improvements include streamlining and automating the Farm Loan Program process with a loan assistance tool, online loan application, online repayment feature and a simplified direct loan paper application.

“We think these changes to the terms are really transformative,” Ducheneaux says. “Any of these three provisions on their own would be a great transformation, but taken as a collective, this really signals a new day in ag finance, where FSA is going to position itself as the leader and the example for how our friends in the lending community might consider doing this.”

Ducheneaux explains a robust training process on the changes is underway for FSA employees and asks for patience and grace as the team comes to understand the new tools they have.

4 Quick Succession Planning Tips With Attorney Jim Angell

Mon, 26 Aug 2024 15:53:26 GMT

A farm’s succession plan is complex. And with ever-changing laws and family dynamics, it can be hard to make sure everything gets taken care of in the process. Kansas attorney Jim Angell recently joined the Top Producer podcast to share four things you should consider for your operation’s transition.

1. Trusts For Gifting
The IRS Lifetime Gift Tax Exemption is currently $13.6 million, but there’s speculation that limit could be cut in half in 2026. If you’re going to be gifting a considerable amount before the end of next year, there are two types of trusts he recommends putting in place.

“We might use an entity, an LLC or Limited Partnership, and do some transfer gifting on that,” Angell says. “Or, we could use what’s called an Intentially Defective Trust. That allows you to maintain the income at the first level, freeze the assets and pass those on to the next generation. We use that quite a bit.”

2. Include Your CPA
Angell says your CPA is a more valuable asset in this process than you may think.

“One of the first things I do is if I don’t have the CPA in the first meeting, I make darn sure the CPA is in the second meeting,” he says. “The clients are out there grinding, surviving, and doing what they do best on the farm. The CPA professionals have a much better understanding [of the overall finances] generally, and so we rely on them very heavily in doing the advanced tax planning.”

3. There’s No Such Thing As One Size Fits All Succession Planning
It’s important to remember fair isn’t always equal, especially in situations with on-farm and off-farm children.

“We’ve got to find a way to keep the farm intact and transition it potentially to to the farming child, but at the same time be fair to the remaining heirs,” Angell says. “That farming child may end up with more equity, but they’re going to end up with a bigger challenge of the debt, worrying about drought, making the operation work, taking the risk and taking the lower return. So, when you really step back and look at it, if you’re looking at it economically, some of these children that are getting less value after the estate is fully settled are really better off in the short run.”

4. Set Up Protection From Unintended Beneficiaries
In some situations, a parent will remarry after the other passes away. Angell says it’s important to make sure this doesn’t have an unfortunate outcome for the farm children.

“Most estate plans, especially the larger ones, are going to need some protections built in there for at least a certain portion of those assets being held in an irrevocable trust upon the first death,” he says. “We try to push a pre-nuptual agreement and get the kids involved in for when dad does decide to remarry. Those situations can potentially tear families apart and the farm apart.”

Hear more from Angell on the Top Producer podcast

Farm Succession: Don't Neglect The Value Of Planning

Fri, 14 Jun 2024 20:30:00 GMT

The week of June 10, Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.

Do you want to know the costliest mistake a farmer can make when it comes to safeguarding the future of their operation? It’s neglecting to plan or having an overly simple plan, says Jim Angell, an attorney with Kennedy Berkley.

There are all sorts of reasons farmers are lax about succession planning. Maybe the patriarch doesn’t want to give up control or face mortality. Maybe some of the kids don’t get along or the parents are stymied by the thought they need to treat all their kids equally.

“Farmers have spent 35 years in survival mode, and succession planning has barely registered,” he says. “The past five or six years they have gone from surviving to thriving, but it’s still hard for them to believe a sophisticated plan is necessary.”

That sophistication comes into play when deciding how to treat farm and non-farm siblings.

“Fair and equal are not the same,” Angell says. “The farming child(ren) needs to be provided with some advantages in order for the farm to survive. They need more value to keep the farm going, but there’s a difference between value and cash.”

Angell advises farmers separate the operational (business) side of the farm from the legacy (land). Equipment has to stay with the operational side, for example.

When it comes to the land, if it’s important for each child to own land, divide it up in tracts and don’t put multiple kids on a tract, he adds.

A succession plan often includes several documents, one of which should be a buy-sell agreement , Angell advises. If you are in business with someone, you should know how to exit the arrangement. A buy-sell agreement is a legally binding document between co-owners of a business that spells out how a business should be transferred if a co-owner leaves the business willingly or is terminated.

Legal Vs. Relationship Pieces

Speaking specifically to the next generation, Angell says don’t hesitate to push for communication. In his practice, he usually sees the next generation first to work on their estate plan, and then they bring in the senior generation.

For the senior generation, don’t believe the same philosophy your dad used: You get what you get, and you don’t throw a fit.

“ Please communicate ,” Angell says. ”Currently, my firm is involved in 10 to 15 disputes where land was distributed equally and kids can’t get along or an LLC was set up but there is no way out.”

The good news is there are legal devices to do whatever a farmer wants to do. The key is using the right mechanisms for the relationship pieces.

“Is it worth it to jeopardize your children’s relationship for any reason?” he asks.

Want more insights to plan for the future and be a leader in your field? Sign up to receive Farm Journal newsletters.

5 Conversations Every Family Should Have Before A Farm Transition

Thu, 13 Jun 2024 20:40:11 GMT

The week of June 10, Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.

Before you handover the keys or step aside for the next generation, make sure you and your family are properly prepared for what comes next. Elaine Froese is a farm family transition expert, speaker and host of the Farm Family Harmony Podcast . She says we’re in the middle of agriculture’s “great wealth transfer” but there’s a serious lack of communication between generations.

“Often there are so many plans to be started that farmers are stymied, overwhelmed and anxious,” Froese says. “I’ve said many times that procrastination and conflict avoidance are killing agriculture.”

For those ready to be proactive in preparing for a farm transition, she recommends these five steps.

1. Calculate Your Income Stream.
Froese says farmers need to determine how they’ll maintain and secure a stream of personal income. Is that coming from their personal wealth or a combination of personal wealth and income from the farm. Once that’s sorted, farmers need to figure out what their living expenses really are apart from the farm.

“They have to figure out their own lifestyle costs first, where they’re going to live and what their lifestyle is going to be,” Froese advises.

2. Define Your Role.
Retiring farmers need to clearly define how they’ll show up for the operation after “retirement” from running the day-to-day. Does that mean fully stepping away, serving as a manager or simply as labor when needed, Froese asks.

“Many farmers who are male have their identity tied up in what they do,” she adds. “They have no capacity or understanding of how their roles are going to shift as they age in place at the farm.”

3. Talk to Your Spouse.
Retirement isn’t a singular decision. Froese says it’s important to discuss the transition to retirement with a spouse or significant other. He or she might have their own ideas of what will or should happen in retirement.

“They need to embrace a vision with their spouse because if the older farmer does not want the same thing as the older farmer’s spouse in regard to what their future role is then that transition plan is essentially stalled and not going anywhere,” Froese adds.

4. Build a Business Plan.
During a transition there will be differing opinions and passionate feelings about the direction of the farm. Froese says that’s expected and farmers need to remember different isn’t wrong, it’s just different. She recommends next-generation farmers bring a business or enterprise plan to the table that explains their intent for future growth.

“When you bring somebody back to the farm you need to generate at least $500,000 in additional gross income to support that new family,” Froese says. “People often do not pay attention to how many families a farm business can support and the level of support expected.”

5. Discuss Future Debt.
As a farmer transitions out of the principal operator role and focuses on retirement, often their risk tolerance for debt decreases. Taking out loans against the farm’s assets for expansion or technology upgrades might feel risky or even irresponsible. Froese says debt loads should be discussed and decided upon early in the transition.

“Many older farmers don’t want anymore debt, and they have it in mind they don’t want to pass debt on to the next generation,” she says. “But where is it written that the younger generations can’t manage the debt?”

Want more insights to plan for the future and be a leader in your field? Sign up to receive Farm Journal newsletters.

A Silent Legacy Will Fail: 3 Ways to Protect Your Assets Now

Mon, 10 Jun 2024 18:49:53 GMT

The week of June 10, Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.

By Heather Gieseke

After witnessing a beloved and once-thriving family farm fail, I reached out to my colleague Kevin Bearley to make sense of what went wrong. As an estate and succession planning adviser for Pinion, Bearley often sees families make similar transition mistakes. For example:

Dad doesn’t want to deal with the issue of his own mortality. His father left it all to him to figure it out on his own, and it worked out.
The family avoids conversations about whether or when dad wants to retire.
Siblings or children don’t get along well, so parents delay retirement or succession planning because they fear it will increase conflict.
Thinking fair and equal means dividing everything evenly among on- and off-farm heirs.

But silence, or having no plan at all, is far worse than having even a bad plan in place.

Act Before Estate-Tax Exemption Drops
On top of that, there’s a compelling reason to address retirement and inheritance issues now. The estate-tax exemption will expire at the end of 2025, dropping from $13.61 million per person to $5 million (adjusted for inflation). The smaller exemption comes at a time when inflation and land values have ballooned. That’s led to growing anxiety about increased assets and estate-tax rates.

The government can currently tax up to 40% of an estate over $13.61 million. That’s set to change at the end of 2025, unless there’s an extension, and the government will be able to tax up to 40% of an estate over $5 million.
	Current 2024 Law	Proposed Change in 2026
Exemption (individual)	$13.61 million	$5 million*
Exemption (married)	$27.22 million	$10 million*
Estate and Gift Tax Rate	40%	40%

*Adjusted for inflation

“It’s imperative for the senior generation to have a plan because, if not, you’ll end up in a court proceeding,” says Bearley who’s an attorney and a CPA. “Judges don’t understand agriculture. They’ll want you to sell all assets, which could require selling land, and then you’ll have to pay your tax bill and attorney before splitting what’s left — and there’s rarely anything left.”

He recommends three techniques to protect your assets while the $13.61 million exemption is still in place:

Gift your assets. A husband or wife could use one spouse’s exemption to gift land and other assets while keeping the other spouse’s current $13.61 million tax exclusion.
Move your assets to the next generation. Transferring your assets to your heirs takes special expertise, but it can be a smart way to protect your estate from burdensome taxes.
Freeze your assets’ value. With the steady rise in land values, your farm’s worth could double in the next 10 years. If you take steps to freeze its value now, you won’t face a higher property valuation in the future, when tax-exemption rates drop to $5 million per person.

Bearley urges farm families to start today to devise a strategy to achieve your retirement goals or to pass on your estate to the next generation.

You’ll need to work with an attorney, a CPA and a family business consultant — trained advisers who understand farming. It takes time to find the right professionals, set goals, explore your options, map out a specific plan and communicate to all involved. Getting the right result for your family will help avoid strife, keep more of your wealth where you want it and sustain the farm for future generations.

Want more insights to plan for the future and be a leader in your field? Sign up to receive Farm Journal newsletters.

The How and Why to Uncovering Your Family’s Legacy

Fri, 31 May 2024 18:03:28 GMT

Legacy. It’s only a six-letter word, but it carries the weight of generations for agricultural families. The weight this word carries makes it valuable for families to understand what their legacy is and how to uncover it. But what does legacy really mean? “I think in the same way your genetics impacts how you look, your legacy is what gets handed down to you through hard won experiences. It’s how your family handles problems and challenges. To have a family legacy is to know how we as a group of people handle ourselves when challenges inevitably come up,” said Vance Crowe – founder of Legacy Interviews.

Legacy Interviews consist of either a couple or individual being interviewed by Vance. These interviews include questions about overcoming life obstacles, business obstacles as well as fun memories to look back on. After the interview is done, Vance and his team edit the interview and send the final version to families for their own use. Legacy Interviews is a business that started on accident but is having a profound impact on both those being interviewed and their families.

The individual(s) being interviewed are presented with a unique opportunity to reflect on their life in a way they’ve maybe never done before let alone asked to do by others. “By looking back on and reflecting about these experiences, it is almost as if people are allowed to close one chapter and open a new one in their lives,” said Crowe. In agriculture, we take on large risks and experiences that push us more than we realize. Looking back at how we overcame challenges and were able to move forward is powerful for ourselves and the rising generation.

The families of those being interviewed not only have the ability to uncover their family legacy, but they also are able to find a better sense of self by hearing these stories. “We often think that parents and grandparents are fully adjusted as we grow up, but this isn’t the case. Just like us, they are doing the best they can with what they know and have,” said Crowe. He recalls an experience where a 40-year-old woman sent him a message noting that she felt like she truly became an adult after listening to the interview of her parents. It finally dawned on her that they never had it all figured out either.

Additionally, hearing the story of the family business from the senior generation can lift weight off the rising generation who might be carrying the fear of losing the farm or screwing up. Vance said, “It’s very powerful for children and grandchildren to know that not every decision made by the senior generation was an automatic success.” We all inevitably are going to make mistakes. It comes down to understanding what the generations before us were willing to do during hard times to make it to the other side. “There is a large disconnect between the generations and young people not knowing what they are capable of enduring, who they are, and where they came from. Knowing the answers to these questions can give them strength when things get bleak,” said Crowe.

Since starting Legacy Interviews, Vance has started to notice patterns within families and couples. “Many men say they wish they would’ve realized earlier that their wife was their partner and that they could’ve leaned on her during hard times,” said Crowe. And, for women the pattern is also related to identity. Vance said, “There’s something special about women once they are over 65 years old. When I ask them what the most difficult lesson to learn was, 70-80% of them share responses related to letting go of the fear of what others think.” Crowe interviews people of a variety of ages and enjoys how the older people get, the less filter there is on what they say. But, he also reminds people that your memories don’t get sharper with age; so you are never too young to record your life experiences to share with the next generation.

As you take time to lean into uncovering your own family legacy, know that it can look like a variety of forms but will be invaluable to you, future generations and the future of your family business. Ask the senior generation about lessons they’ve learned, some of their favorite memories, how they got through the tough times and what advice they have for future generations. And if at all possible, do it in person to build up your own relationship and connection with these people in the online world we live in.

Link: https://www.casualcattleconversations.com/casual-cattle-conversations-podcast-shownotes/vance-crowe

Meet 87-Year-Old Joan Kerns, A True Trailblazer Who Helped Carve Out A Niche For Her Family Nearly 60 Years Ago

Mon, 26 Feb 2024 22:06:28 GMT

Cut by cut. Slice by slice. Every detail counts for Edgewood Locker , a northeast Iowa-based business that’s been spliced together for nearly 60 years in 1966.

With no master plan, it started when Tom, a farmer, and Joan, a nurse at the time, were forced to find a new place to live.

(Farm Journal)

“We were on his dad’s farm for five years when his dad announced he was going to sell the farm. He wanted us to buy it, but we could not afford to buy a huge farm back then,” Joan explains.

So, they found a farm to rent three miles outside of Edgewood, until an accidental fire on that farm sparked another change.

“Talk about an act of fate. We knew the lady who owned that farm was going to make us move, because she believed those stories that we started the fire,” Joan remembers. “Tom came home one day and said, ‘The locker in town is for sale.’ So, we bought it.”

It was that decision that changed the course for the Kerns family. Neither Joan nor Tom knew anything about running a meat locker, but they had the tenacity to make it work.

“Tom wanted to do the actual meat cutting and that sort of thing, and I was going to do all the books and the book work,” says Joan.

The business started out with minimal equipment: only a saw and a grinder at the locker. That didn’t stop the Kerns from seeing phenomenal growth.

“And every year we were in business, we grew. Every year we got bigger. And so, finally, we outgrew our plant,” she says.

The growth wasn’t always easy, and it didn’t come without financial hardships. Joan says the couple borrowed money to expand and grow six different times.

“But I remember, maybe the second or third time Tom said, ‘I’m going to go up to the bank tomorrow and borrow some money for the next addition,’ and I went up to do our daily banking that day. And the girl said, ‘Oh, we can give you the money.’ So, I borrowed the money, got back home and I told him. I said, ‘Well, I got the money borrowed for our new addition.’ Tom said, ‘They let a woman do that?’ That’s the way it was back then,” says Joan.

A Force of Nature

Joan’s son Terry will be the first to tell you how much his mom was a driving force behind the scenes, if she didn’t always get the credit she deserved.

“She’s kind of a force of nature, there’s no doubt about it, and probably even more so than anybody realizes,” says Terry, who’s one of two second-generation owners of Edgewood Locker.

What makes Joan’s role so essential to their growth is the fact Joan’s husband, Tom, was dyslexic. So behind the scenes, Joan handled the paperwork and books, all while raising four kids at home.

Bringing in the Second Generation Straight Out of High School

Joan is still a true trailblazer today, as the Kerns’ unconventional ways and business decisions also helped fuel the family operation.

“The boys had come into the locker business as they graduated from high school, which really let us dream bigger,” says Joan.

That was in the early 1980s. Tom and Joan didn’t just see their sons Terry and Jim as employees, they allowed the boys to buy into the business fresh out of high school.

(Farm Journal)

“It wasn’t popular with their peers that they allowed Jim and me to buy in at such a young age, you know. They gave us a huge opportunity,” remembers Terry.

“And I think that’s why we grew as we did, because they were partners. They were going to be in this, and it made a big difference,” Joan says.

The growth has been impressive over the past 60 years, including building a new facility in the late 1990s that has seen even more expansion since.

“We built this business because she paid attention to detail. And she wanted to make sure it was done right. She still keeps us on our toes,” says Terry.

At 87-years-old, Joan is sharp, and attention to detail may still be one of her greatest strengths.

“She is not afraid to tell us when she thinks we’ve done something wrong,” says Terry.

Bringing in the Third Generation

While Joan doesn’t overlook the small things, she’s also the first to celebrate how much the family business has grown. It now includes four grandkids who have become part-owners.

“Oh my gosh, I did not see that coming. And they each bring their own experience, knowledge, their forte to the business,” says Joan.

“All of us in the third generation, all I feel have a very unique skill set, which allows all of us to bring something different to the table,” says Baili Maurer, one of Joan’s grandchildren who bought in as a third-generation owner.

“None of us really overlap much. We all have our own thing that we do, and it just works,” adds Katie, who’s also one of four grandchildren who are partners.

(Farm Journal)

Katie and Bailli, along with Luke Kerns and Payson Kerns, are the third-generation owners of Edgewood Locker.

“They’ve got experience, they’ve got education in meat science in business. So, as fun as it was to grow with Mom and Dad adding Jim and me, this next generation really has the potential to do amazing things,” says Terry.

Third-Generation Growth

“We’re just doing what we can to take the business to a new level,” says Baili.

“We really expanded into wholesale stores and retail stores carrying our products. And we just keep going with what the second generation and first generation have been doing, as well,” adds Katie.

The growth is evident everywhere you turn. Construction in their retail and lobby area is a clear sign of even more progress.

“We had a major expansion of 19,000-square-feet that we’ve been in now a little over a year and a half, and I think it’s running well,” says Terry. “We remodeled our old processing facility and updated that, and it looks like brand new.”

The decision to expand and remodel their retail and lobby area was propelled by the busiest season for Edgewood Locker: deer season.

“I think last year, we did 3,700 whole-carcass deer, and then over 3,500 batches of boned-out deer that came in, so well over 7,000 different batches to jerky,” Terry says.

With that type of volume, Edgewood Locker has also been able to invest in bigger and better equipment.

“I’d like to say we had this great master plan, but we never had a real plan to say, ‘Well, next year, we’re going to get into wholesaling, or next year, we’re going to do this.’ We just kind of took it as it came. Something presented itself, we ran with it, and ran hard with a lot of it,” says Terry.

A Legacy Worth Sharing

With 130 full-time, part-time and seasonal employees, Edgewood Locker also offers other custom processing, and has products for sale, in more than 100 retail stores across Iowa. And it’s that side of the business the third generation has already helped expand.

“I hope we can just continue the legacy,” says Baili.

“I’m hopeful that we can just keep doing like we’re doing, keep growing where we can and keep expanding things and have it all set up for the fourth generation if they would like to join in someday,” Katie says.

Walls of awards are a product of what Joan and Tom started in 1966, but that isn’t what Joan is most proud of today. The greatest gift just may be the fourth generation and the chance to carry on a business that started on hopes and dreams.

4 Things to Do When Your Kids Come Home to Farm

Thu, 20 Jul 2023 18:56:54 GMT

Matt and Lisa Moreland hoped at least one of their sons would return to their farm based near Medford, Okla. What they didn’t anticipate was all three sons – James, Will and David – wanted to join the family business once they completed their college degrees.

“It put me back on my heels. I thought, ‘Wow, we’re going to have to find a way to grow,’” Matt recalls.

That was seven years ago. Here are four things Moreland says he has learned in the process.

1. DON’T SLICE YOUR “PIE” INTO SMALLER PIECES. Instead, make a bigger one. The Morelands have grown their operation to accommodate each son’s return.

With James, they added an Angus cowherd. Will has taken the lead on all things agronomic on the farm, which grows corn, soybeans, winter wheat and cotton. David runs the excavation/construction side of the operation.

Scaling up the faming enterprise as each son returned has enabled the Morelands to compensate them accordingly. “They also get an annual bonus and equity in the operation,” Matt says.

2. LET YOUR LEADERS LEAD. “I quickly learned as we’ve grown there’s only so much I can do. I can guide, but I can’t be a control freak,” Moreland says.

How that plays out: each son leads in their respective areas of expertise, and then he and the farm’s eight employees provide support as needed.

“We meet as a group every Monday morning to look at what needs to be done in the week ahead, make assignments and then modify them as necessary,” he says.

Don’t underestimate the value of having clearly defined roles and accountability when children return to the farm, suggests Rena Striegel, president of Transition Point Business Advisors.

“Create a template to delegate responsibility and build in accountability to develop the next generation of leaders,” she advises.

3. CARVE OUT YOUR ROLE. Moreland functions as the managing partner in the operation, overseeing the cash flow for the farm as well as the big-picture direction for the operation. He also takes the lead on lender, landlord and Farm Service Agency (FSA) relationships.

4. HARNESS HELP FROM EXPERTS TO CREATE PLANS. “The investment of good counsel is minimal compared to the cost of mistakes,” says Kitt Tovar Jensen, staff attorney at the Iowa State University Center for Agricultural Law and Taxation.

Moreland knew, even with professional counsel, mistakes can be made. His solution: “Vet your plans with key individuals and organizations. For financial planning, you have to consider the accounting side of things as well as the legal components, and it can be challenging to understand what might work for the FSA, as well as for your accountant and even the IRS,” he says.

Some key questions Moreland asks of experts: What do you think of our plan? How can we make it better? What else should we do?

Take Control Of Your Succession Plan at the Top Producer Summit!

Date: Monday, January 23, 2023
Time: 8:30 am - 4:30 pm
Cost: $219

Use the topics and tools included in The DIRTT Project to jump-start the succession planning process for your operation whether you are just beginning or need to get on track.

Learn how to set goals for both the transitioning owners and the operation.
Learn how to create a plan to ensure that your heirs and successors are ready to lead and work effectively together.
Learn how to address family disharmony or handle communication with successors who do not get along.
Learn how to choose your professional team and hold them accountable for the work they will be doing for you.
Network with and learn from other farmers in transition.

Learn more and register now!

If you are in the process of succession planning, be sure to check out the tools Farm Journal offers. To learn more, visit FarmJournalLegacyProject.com

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Want to Grow Your Farm? Ask These 10 Questions First

Wed, 17 May 2023 19:57:51 GMT

More than 50% of farmers intend to grow their operation, based on responses in Purdue’s February 2023 Ag Economy Barometer.

(Farm Journal)

If you’re thinking about scaling your farm, Michael Langemeier, Purdue ag economist, says it’s important to first ask these questions.

1. Why should I grow my operation?

Before an operation expands, consider the vision and direction you want your farm to take.

“Are you interested in a commodity-based approach or a differentiated product strategy? Commodities will focus on cost control while products will be centered around value-added production and above-average prices for your crops,” Langemeiers says. “Start here and consider how growth impacts your direction.”

Once an approach is chosen, it’s time to decide which dominoes you want to play in the expansion game.

2. What ways I can grow my farm?

There are many ways to expand an operation: acquire land, new equipment and technology, upgrade facilities, etc. However, Langemeier says some producers need to think outside the box.

“Don’t just think about what you currently do or have always done. This step is a good time to do some soul searching to consider where you want to be in five to 10 years. Do you want to be the same enterprise, or do you want to make changes?”

Langemeier says this soul-searching step is especially important when someone is coming back to the farm.

“We’re seeing that a lot of students who come from farms want to go back, and we have to look into whether there are opportunities there or not,” Langemeier says. “There’s always new interest and ideas that come with the transition back to the farm.”

After establishing how you want to grow, consider your growth approach.

3. What should my growth approach look like?

A strengths, weaknesses, opportunities and threats (SWOT) analysis is a common growth approach in business. Langemeier says another way to think about SWOT is in terms of internal and external analysis.

“Internal analysis means looking at key resources and capabilities of a team or operation,” Langemeier says. “Does someone possess a unique skill you can maximize? Take advantage of those unique skillsets.”

Internal analysis mainly centers around strengths, but weaknesses play a role here, too. Are there areas in your operation that need professional development? Langemeier says this is the time to work on both.

External analysis, on the other hand, examines economic and market trends.

“The easiest example is in livestock; raising pasture pork, poultry or beef, or offering direct meat from a producer rather than a grocery store, are all growing trends,” Langemeier says. “If you have those opportunities, think about how they might fit into your operation.”

While there’s more risk in external factors, Langemeier says “the risk can be worth the reward” for producers who understand what trends they can support.

4. How do I evaluate my farm’s growth ventures?

Now that the growth options are laid out, how does a producer choose which option to pursue?
These eight criteria can help:
• Strategic fit
• Expected returns
• Risk
• Capital required
• Cost and ease of entry and exit
• Value creation
• Managerial requirements
• Portfolio fit

Strategic fit is one of the biggest points to consider, according to Langemeier.

“A few years ago, many growers were interested in hemp production. I would ask them if hemp would require new machinery and if they were used to dealing with contracts,” he says. “If the answer was yes and no, then it probably wasn’t going to be a good fit.”

He says ease of entry and exit is the second criteria he points farmers to.

“If your farm were to pursue a new venture and it fails, would it mean you could lose the whole farm? Because there will be things that fail,” Langemeier says.

If a specific venture requires a lot of capital, he says it is pivotal to explore how the investment could affect balance sheets in the long run.

5. What skills are needed to grow, especially in people returning to the farm?

Taking stock of employees’ skillsets, this is the part where growers consider the strengths and weaknesses of human capital currently on the farm and those soon returning to it.

“When someone’s thinking about coming back to the farm, that’s the time to assess the skills that are currently needed, and then try to encourage the younger person to garner some of those skills,” Langemeier says. “We might have the skills to expand our operation, but do we have the skills to start a new venture in a different enterprise? Think about it from all angles.”

6. How do I finance?

Are you willing to take on debt to expand? If so, how much debt are you willing to take on? Langemeier suggests looking at debt as enabling you to take advantage of an opportunity, not as a negative.

“If you have 2,000 acres and are thinking about adding 1,000 acres, even if that’s leased ground, you’re still going to need more machinery and people. You probably don’t have that retained earnings, so you’re going to take on debt,” he says. “As long as you’re making a profit on those additional acres, and you can make the debt payment, it’s not a problem.”

Langemeier warns that a small profit margin can quickly turn into an issue when a venture flops. He advises producers keep a somewhat equal balance of debt and projected venture profits.

7. What business models do I use to grow?

Expanding internal growth with retained earnings and debt is a typical business model for most operations, according to Langemeier. He says there’s a new trend in this arena.

“I’ve seen a lot of production ag cases recently where a farm acquires assets from a retiring farm,” he says. “Not only do they farm the land, but they also buy the machinery, the bins and the whole farm. This really works for some operations.”

Another model that’s becoming somewhat common is a joint venture. Agribusinesses use this model frequently, but Langemeier says more mid-sized operations are leaning toward this option.

“One of the advantages of joint-venture contract turkey, laying or finishing operations, especially in the Corn Belt, is that there’s a partner with you,” Langemeier says. “It allows us to grow effectively.”

Finding a partner to go-in on the venture isn’t always easy. However, Langemeier says producers often look in the wrong places.

“Some farmers say they don’t have any outside investors, so I tell them to think about family or non-farm heirs. Pitch it as a way of investing in your business so that you don’t have to make them partners or an operating entity,” he says. “Land, for instance, could be an outstanding source of outside equity with non-farm heirs.”

8. How would an expansion impact my current operation?

When considering growth options, it’s vital to your growth success to consider how each option will impact the farm’s balance sheet and income statement. Langemeier suggests running three projected scenarios — worst, most likely and best case — through a spreadsheet or a software, like the University of Minnesota’s FINPACK system .

If you choose to run the projections by hand, this is the process Langemeier suggests:

a. Impacts on cash flow and balance sheet

“A growth change will impact both — don’t just look at cash flow,” he says.

b. Debt versus equity

“Maybe the change will reduce your liquidity and increase your solvency too much,” he says. “If that’s the case, you can’t pursue that particular venture.”

c. Time management

“There are only so many hours in the day, and some of us sometimes work too much,” Langemeier says. “Say you’re going from conventional to organic, it’s going to be management intensive. Be realistic about what you and your team can handle.”

9. What challenges would an expansion create?

Construction delays, cash flow shortages, depleted working capital, short-term inefficiencies and management bottlenecks are often at play when starting a new venture, according to Langemeier. He advises producers to be proactive.

“If a venture creates massive cash flow shortages and eats into your working capital, you need to have a plan to deal with those issues. If you don’t, it will lead you into other challenges, like inefficiencies, and you’ll end up with a failed venture,” he says. “Make sure you have a contingency plan.”

10. What is my sustainable growth rate?

Calculating a sustainable growth rate means saying what a growth rate would be if retained earnings is the only money used, and then compare that to what a growth rate would be if only debt was used. Langemeier says this equation has other variables that often go unchecked.

In the debt scenario, he says you have to think about the downside of debt — the chance of going bankrupt and variability.

“Even if your operating cash flow is low, the lender still wants his payments,” Langmeier says. “You have to think about the coping strategies to make those debt payments even when corn is at $5, compared to $6.50. Make sure you run all the numbers imaginable.”

The Main First Step When Considering Expansion

With all 10 points in mind, Langemeier says the first stage of growth shouldn’t include producers running to formulate a 50-page business plan. He says step one starts with a conversation.

“You should be having regular farm and family meetings, at least once a year, to brainstorm with your employees and family members about the things you could do differently on-farm, and allot time to consider continued improvement, opportunities and threats,” he says.

According to Langemeier, these meetings will offer more than exploring growth; they will ensure farm, family and employee survival.

Stepped-Up Basis Leaning in Favor of Rural America on House Ways and Means Panel

Thu, 02 Feb 2023 23:21:15 GMT

Tax policy geared toward farmers and others that transfer land and other assets to heirs will get a renewed focus at the Ways and Means Committee this year, a marker of the panel’s more rural tilt while still promoting measures that favor business.

Chairman Jason Smith (R-Mo.) has cast himself as a champion for working families, small businesses, and farmers, “not the people on K Street.”

With the retirement of former Rep. Kevin Brady (R-Texas), whose district included Houston suburbs, and the exit of former Rep. Tom Rice (R-S.C.), whose district included Myrtle Beach, and the addition of members like Reps. Randy Feenstra (R-Iowa) and Claudia Tenney (R-N.Y.), the panel now has greater rural representation.

Stepped-Up Basis Breakdown

The step-up in basis tax rule reduces the capital gains tax on inherited property. The Joint Committee on Taxation has noted that the failure to collect these taxes costs $40 billion per year, citing a 2021 Congressional Research Service report.

Read more: Use Portability to Avoid a Potential Multi-Million Dollar Estate Mistake

In Democratic proposals to eliminate the provision, lawmakers have included exemptions of up to $1 million and for farmers.

Rep. Bill Pascrell (D-N.J.), who has introduced legislation on the issue, told Bloomberg Tax that “people are getting away with murder” on the issue. There’s room for compromise, though, Pascrell said.

“We’ve made some considerations for farmers, small farmers, but there’s no question in my mind that inheritance has never been taxed many times,” Pascrell said. “Anybody who believes that your inheritance should not be taxed, I’ll listen to, but that, to me, is probably in the top five of what needs to be reformed.”

Favor in the House

With Republicans now in control of the House, Feenstra said he wants to introduce legislation shielding the stepped-up basis and like-kind exchanges.

Read more: Top 10 Stories of 2022: Tax Court Rules Farmer Can Use Old Tractors

The upcoming farm bill will be the first opportunity to add in those types of policies, as well as extending or renewing tax measures from the 2017 tax law that expired at the end of 2022, Feenstra said.

“There’s great opportunity for that Ways and Means can work with the Agriculture Committee,” Feenstra said, “and make sure whether it be in conservation, an energy title, or even a research and development title.”

Tenney said she hopes to make other tax measures benefiting farmers permanent, pointing to the 2017 tax law’s 20% pass-through deduction for certain businesses, which she said benefits farms in her district.

Feenstra also wants to see full bonus depreciation, which allowed companies to immediately expense capital expenditures, and which starts to phase out this year, make a return.

A research and development tax deduction that expired last year could also be included in the farm bill, Feenstra said.

The Proposed Transfer Tax Can be Much Worse for Most Farmers Than the Estate Tax

Wed, 21 Sep 2022 06:27:54 GMT

President Biden’s American Families Plan proposes a new transfer tax on farm and ranch families. Many commentators refer to this as an elimination of the step-up in basis. This is incorrect. Step-up in basis remains, however, families will now face a burdensome transfer tax during lifetime or at death.

Farming and ranching are very capital-intensive with low margins, subject to the whims of weather and markets outside the control of the farmer or rancher. Placing a new transfer tax on simply transitioning the family business to the next generation may result in the family business liquidating due to the tax being greater than the business net worth.

The estate tax is based on the fair market value of a farm or ranch and the tax should never exceed the business net value. The proposed transfer tax will be determined on appreciated assets and may easily exceed the net equity. Here is an example:

John Farmer owns a dairy farm in California with assets of $10 million that have an income tax basis of $1 million. The farm has total debt of $7 million. John’s heirs will inherit the farm with a net worth of $3 million, however, the transfer tax on the $9 million of appreciation based upon President’s Biden’s top capital gains rate of 43.4% plus California’s top rate of 13.3% equals a total transfer tax of about $5.1 million. Instead of inheriting a dairy farm with a net value of $3 million, the heirs now face the prospect of negative net worth of $2 million and owing $5 million of transfer tax. They are in a $3 million hole and either can’t pay the tax or their primary creditor will be the IRS for the next 15 years simply to get it up to zero. With the IRS lien, their banker likely won’t renew the operating line.

The unintended consequence of the proposed transfer tax is the dairy won’t be able to borrow the $7 million in the first place. The bank, fearing an unexpected death of the owner, won’t risk its collateral being yanked away from it at the instant of death.

Some countries have some type of transfer tax (such as Canada), but they do not pair it with an estate tax. A combination of an estate and transfer tax would likely result in the United States having the highest tax on farm and ranch families in the world. In some cases, the actual tax could easily exceed the value of the farm or ranch to the next generation as in our example.

The American Families Plan indicates some protections for family farms and ranches; however, this protection seems to simply defer paying the transfer tax with interest. This “deemed” debt to the IRS will create a lien on the farm and ranch that will create issues with obtaining needed financing to keep the farm and ranch in operation. This so-called protection may simply accelerate the liquidation of the family farm or ranch.

There are other equitable means of raising revenues that will not eliminate American Farm and Ranch families as the proposed transfer tax would accomplish.