Estate planning: Experts discuss tools, resources for succession planning during conference
Laramie – On March 3, agricultural experts from around the state gathered to discuss topics such as effective communication, legal issues and estate planning tools during 2017 Farm and Ranch Transition Conference.
University of Wyoming Agriculture Entrepreneurship and Personal Financial Management Specialist Cole Ehmke discussed the current state of agricultural operations, as well as the importance of communication and goal setting in succession planning.
“Tourism in Wyoming is certainly dependent on the visibility of agriculture, and that is evident driving across the state,” said Ehmke, “but it doesn’t really help us understand the operations that manage those rural resources.”
The Ag Census characterizes farms as, “an establishment which produced and sold $1,000 or more worth of ag products during the year or could have produced $1,000 barring disaster,” he continued.
There are approximately 2 million farms in the United States, with the peak number of operations being in the 1930s. Every state has seen a continual decline since then.
According to statistics, the average farm family requires $47,000 annually for basic living costs.
“A lot of people say they can get by on quite a lot less, but the largest number of what we would consider farms don’t even generate that in their gross revenues in one year, let alone support all of their business and personal costs over a number of years,” commented Ehmke.
According to 2012 data, approximately 11,000 ag operations exist in Wyoming.
“Almost 3,500 of those operations produced less than $1,000 per year,” noted Ehmke.
Alternatively, only approximately 680 operations grossed more than $500,000 per year.
“Looking at the top four tiers of gross production, only about one-fifth of the operations in Wyoming are what we would consider self-sustaining, commercial operations,” he said.
However, Ehmke commented that the traditional mid-sized agricultural operations are the most unstable in the current market.
“These mid-sized operations are the ones that are really suffering. It’s kind of get bigger or get out,” he continued.
“We can assume that about half of the people out there don’t have an estate plan, which is the very minimum for a succession plan,” commented Ehmke, noting that many haven’t named a successor for the family operation.
He noted that less than 20 percent have spoken to a banker about succession planning.
“Some have spoken to an accountant, which is natural because there can be some extremely serious estate planning or tax issues, as the federal estate tax exemption would be a big motivation for someone to talk to an accountant,” continued Ehmke.
According to the survey, Ehmke noted, “Succession planning is not something that’s been well addressed by farmers and ranchers themselves to this point.”
According to Ehmke, most farmers and ranchers are what he would characterize as action-oriented.
“They want to see a tool or product, so they would begin, more than likely, with the estate plan, which has numerous documents, and then work backward from there, leaving out the things that need to begin that conversation,” he said.
In many cases, Ehmke has found that the senior generation drives the creation of an estate plan but oftentimes doesn’t begin the process by discussing expectations with stakeholders.
“Typically, we tend to see that the senior generation is the one who motivates beginning an estate plan, but they haven’t had the conversation with their children, grandchildren or spouses as to what their assumptions may be about how they’re going to be involved in the operation in the future,” commented Ehmke.
Ehmke noted that one of the typical goals in succession planning is to protect the family farm.
For example, some producers may have a goal of succession planning to plan for retirement.
“We want to keep it as an operational business and pass the operation on to the next generation,” he said.
While many in agriculture would never think of leaving the industry, Ehmke commented that it may be a goal of some to get out of the industry.
“They come from the perspective that doing something off the farm is healthy for not only their physical and mental health but for bringing in the junior generation,” he said.
Another major goal of many producers is to minimize federal estate taxes or capital gain taxes.
According to Ehmke, many farmers and ranchers try to switch the priorities of what tasks to do first in succession planning.
“Most farmers and ranchers would switch this list and start talking about the tax issues before having those conversations with successors, so we have to remind people that we need to begin with where we want to end,” he concluded. “What are our goals going to be and what are the goals of that junior generation?”
Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.