It's never too early or too late to start planning
By Janet Kubat Willette
jkubat@agrinews.com
Date Modified: 03/29/2012 10:09 AM
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OWATONNA, Minn. — A helpful suggestion coupled with childhood memories led Myron Friesen to start a farm estate planning business.
Friesen, 44, was an FFA adviser, agricultural education teacher and farmer ready to make a change when a neighbor and good friend suggested he become a farm estate transition planner. It made sense to him.
He'd grown up on a Mountain Lake farm and remembered relatives on his mother's side didn't talk to one another after his grandparents passed away. He didn't understand why at the time as he was only 10 or 12, but the issues became clearer as he worked with families through FFA.
He'd make farm visits where grandpa, who was 70, owned the land and his 40-year-old son was farming. The 15- or 16-year-old wondered how he would ever get into the business. Most often, the families hadn't done any planning to allow the farm to transfer from generation to generation.
Friesen stressed planning at a March 14 meeting at Cabela's in Owatonna.
More than 40 people attended the two-hour presentation where Friesen discussed several opportunities for transferring farms. He wasn't there to solve individual issues, rather to offer an idea of the many options for farm transitions.
"Life can change in a hurry and then what? Is it just magically going to get from one generation to the other or does it need to be carefully transferred? We say it needs to be carefully transferred," Friesen said.
Friesen stresses planning in his business, Farm Financial Strategies. Twelve years ago, he left teaching and shifted to farm estate planning along with finishing hogs and raising corn.
Tax issues and continuation issues must be dealt with when planning a farm transfer. The tax issues are numbers, Friesen said. Farm owners may be irritated with state or federal laws, but things can be done to minimize the financial impact of taxes.
Where things get dicey, however, is developing the farm continuation strategy.
Conflicts arise where distribution isn't properly planned, he said, which causes families to grow apart.
He used pictures he'd taken of his wife's family at Christmas as visual aids. First, there's a photograph of his mother-in-law and father-in-law behind a pile of dirt. Then, there's the three kids in a photo. In the next frame, one sibling picks up a pile of dirt and says it's hers and soon her brother has her in a headlock. The last photo in the series features the in-laws and the grandkids.
Problems multiply, Friesen said.
He presented a couple examples of continuation strategies. In one, the farming heir rents the property while the parents are living and then purchases it at 100 percent fair market value on a 20-year contract at 7 percent interest at the parents' death.
The total cost for the farming heir for the family's 600 acres is $11 million.
In a second scenario involving the same fictional 600 acres, the farming heir's cost is $3.9 million. In this case, the farming heir rents for the parent's lifetime and then purchases the farm at an established price after their death. It also includes life insurance as part of the estate plan.
Every family and every meeting different. He has three to five appointments every day. Of the last 10 meetings, only four of the couples had updated wills. Six had no will. One family had a proactive plan to keep the farm together.
Increasing land prices and volatile commodity prices have added to farm estate distribution conflicts. When corn is $2.80 a bushel, non-farming heirs are willing to cut the farming heir some slack, but when prices hit $7 a bushel, they aren't.
The estate tax credit is now $5.12 million per spouse with a 35 percent maximum tax. If an estate is valued at $4 million there is no estate tax. However, if the estate is valued at $6 million, the $880,000 over the $5.12 million is taxed at 35 percent for a total of $308,000.
That law, however, is scheduled to revert back to 1997 language on Jan. 1, 2013. That language sets the estate tax credit at $1 million with a 55 percent maximum tax.
With that same $6 million example, the estate tax becomes $2.750 million, Friesen said.
Friesen said he goes to church with Sen. Charles Grassley, R-Iowa, and is acquainted with Sen. Mike Johanns, R-Neb., and neither expect any action to change the estate tax credit before the election nor in the lame duck session following the election. That means it will likely take effect.
Also, President Obama has floated a proposal for a $3.5 million credit with a maximum tax of 45 percent.
There are three possibilities out there, Friesen said. Either the federal government reverts to the $1 million, stays with the current $5 million indexed for inflation or goes somewhere in between.
"Who knows?"
Friesen works with people from Minnesota to Texas and Colorado to Indiana. The vast majority of his clients are between 60 and 80.
"People are never too old or too young to start planning," he said.