Dear Michael:

We wanted to write and thank you for the article your wrote titled “Don’t Complain About Farmers With Your Mouth Full“. It’s about time someone explained that subsidies aren’t making farmers rich – they’re to keep farmers in business to produce the most valuable commodity in the world – food. This benefits not just farmers but every time people go into a grocery store to buy food – having a willing and able workforce to provide low-cost food items.

We’ve had four generations on our family farm, each one taking over from their father or their father’s father, in some cases. But now, it seems so much more complicated than it used to be when my husband’s father took over and my husband, in turn, after him.

What was once simple now seems too complicated; we don’t know where to begin.

– Stuck in Neutral

Dear Stuck in Neutral:

Life used to be a lot simpler in oh so many ways, but too many people think transition planning has to be complicated.

For example, livestock producers can set up their herds so that they can do shares with the next generation. If the retiring producer will do shares on the calf sales, keep the income from the cull cows, and let the next generation slowly build their herd, in seven to ten years the herd will be transferred. To keep income at a steady rate, the charge for pasture and hay land can be continuously raised so the loss in calf income will be offset.

People with machinery debt need to sit down with the next generation and figure out how many acres Junior is going to have to take over from Dad and Mom to pay off the debt on a single piece, or multiple pieces of machinery. If it’s owned land, the acres would be less and if it’s rented land, you’ll have to consider the costs of rent into the equation.

The same with land debt. If you are still working to pay off land debt, consider selling a piece of land to Junior, with him making payments to you equal to the amount of your payments.

Think about it: You work all year – you make money from your sales – you make a payment to the bank on your loan for another fifteen years when you’ll be eighty years old, while your child gains no equity.

Why not set things up now where he can buy a piece of land from you on a contract for deed so while he’s paying you off, you’re paying your loan off at the same time?

You both win, as he gains equity over time and you can retire. If your income is low, in the zero to fifteen percent income tax rate, your capital gains tax will be zero. You need to charge an interest rate to him but right now rates between family members is very low at about 2.65%.

These are some simple ideas on how to get an estate plan into motion. A good estate plan is one where all the big decisions are handled should you die tomorrow or they are answered over time by simple, small progressive moves over your lifetime. You need to do both – have an emergency plan written out – and you need to have yearly targets you and the next generation are moving towards in tandem.

Too many people get caught up in the “I just don’t know what to do” and do anything. Suddenly, thirty years passes them by and the small problems they had have become mountains of property to worry about, plan for, try to pass on to the next generation and you can’t comprehend what to do.

Work with an estate planner that understands estate planning is not something you complete once and move on from. It’s something you make a part of your life.