GRAND FORKS – As they consider the future of their farming operations, one of the biggest mistakes farmers make is not starting estate planning early, said Ray German, who specializes in this type of work at the German Law firm, with offices located in the Grand Cities Mall, 1726 S. Washington St.
Attention to these details is crucial to developing a plan that ensures the transfer of farmland and other property to the next generation is carried out according to the farmer’s wishes, German said.
“A lot of people think they have got to be on their deathbed before they can do planning,” he said, “and that’s wrong.”
Farmers need to take a “proactive” approach in this matter; “they need to be looking 10, 20, 30 years down the road,” he said. “The main thing is, start early and do proper planning – and proper planning starts with education.”
German also asks his clients – and prospective clients – to consider “what would happen if you die tomorrow in a farm accident,” he said. “If they haven’t done proper planning, it leaves a real mess.”
With proper estate planning, families can avoid lawsuits and stay out of court, avoid probate, unwanted publicity and competition between children, he said. “That can all be eliminated if it’s done properly.”
At his firm, which has specialized in estate planning since 2009, German asks clients to attend a seminar – either in person or online – that explains farm transitioning, in general, and helps clarify what they need to consider.
“We try to help clients realize that there’s more than one or two issues” involved in the process of turning over the farm to their offspring, he said.
“Sometimes people come in and say, ‘I just want the farm to go to Larry; he’s been farming it,’ etc.,” he said. “And that may be their first issue, but we really want to find out how many issues are they concerned about, and what is the priority of those so that we make sure we cover what’s of concern to them.”
When clients meet with him, he said, it’s important that all the decision-makers who are involved in the process are present.
“We want all the decision-makers there,” he said. “Typically, it’s husband and wife and sometimes they want a child there, they want the farming child, they want their accountant there. Also, but seldom, we have another attorney, for some reason, that’s maybe a real estate attorney or (someone else), and we welcome them.”
German uses a checklist of issues that helps prioritize concerns.
The most common issue farmers have is being sure the farm is preserved and will transfer to the farming child or children, he said. To this end, the German Law firm uses a unique Legacy Land Trust – which is modified with each clan – that sets out how the farming child will be given the ability to rent the land, usually at a reduced price, German said.
“After a period of renting, the farming child typically has the option of buying the property from the trust at a reduced price also, making it possible so that the farming child doesn’t have to get financing – they don’t have to go borrow millions of dollars, which takes a lot of time nowadays – to be fair to the other children. … They can take ownership earlier so they’re not spending their whole life paying off mortgages.”
Clients who are in their 30s and 40s can create an estate plan that ensures that “their interest in the farm is going to stay with their children down the road,” he said. “And, if it’s later in life, most of the time – 50s, 60s, 70s, 80s – we’re going to be dealing with placing the assets in trust.”
In estate planning, various circumstances can come into play, German said, such as a farm couple divorcing or the need to assure that the interests of a child with disabilities, including financial benefits, are protected.
When a farm couple divorces, the farming spouse may want to make sure assets stay in the family and do not flow to the ex’s new spouse or that person’s offspring. In such cases, a prenuptial agreement may be required if the ex-spouse chooses to remarry.
In some situations, the parents want to get out of farming totally, but, for income tax purposes, it’s better for them to stay involved in the farming operation, although they aren’t actively involved. They may defer income – delay the sale of a crop, for example – in order to potentially pay less in income tax. As a firm that offers financial coaching, “we like to work with the CPAs (certified public accountants) of clients because the tax aspect is a big part of it.”
For those farmers who put an estate plan in place, German recommends that they review that plan “every three to five years, and maybe sooner,” he said, to learn about any new laws, statutes or tax laws that may affect their plan.
For more information, call German Law at (701) 738-0060 or visit https://germanlawgf.com .