Vyhnalek: Fair is not necessarily equal in farm succession planning
“When we are done planning for farm succession, will we be able to keep the family together?”
This is a question many parents ponder when planning out what will happen to the farm when they are gone. According to Allan Vyhnalek, University of Nebraska Extension educator specializing in farm succession and transition, parents need to have a least one conversation with their family members before they make an estate plan.
Making a plan
The family needs to have a plan for the land while all parties are still alive, he says.
“Communication is important to maintain family relationships,” Vyhnalek explains. “When estate plans are not shared prior to death, it can create hard feelings and life-long damage to family relationships.”
In one situation, the parents had two quarters of irrigated farm ground and two farming sons. The estate plan was to give each son one quarter. When the parents passed, dissension occurred between the sons because each quarter had a significantly different value, and it wasn’t specified which son got which quarter.
“The brothers got into a dispute, and now, they no longer talk to each other,” he says.
Keeping the family together
During estate planning, Vyhnalek says the goal should be to hold the family together.
“Don’t make an assumption that family members will work out disagreements because they always have in the past or that the farm will always be in the family. Get a commitment,” he states. “The best way to do that is to be open and clear with communications and put all the options on the table.”
In the earlier example, he says any disagreements could have been resolved by appraising both quarters, and the brother receiving the higher-value quarter pay half the difference of the lower-value quarter.
“If one quarter was valued at $100,000 more than the other, then the brother with the higher-value quarter should pay his brother $50,000,” Vyhnalek explains. “That way, both brothers will feel they were treated equitably.”
There are always questions about which family members should participate in estate planning discussions.
“I think the conversation should include grandma, grandpa, children and spouses and any adult grandchildren,” he says. “Everyone who comes to the meeting should be willing to share their ideas.”
Even off-farm family should be included.
Vyhnalek has seen fights ensue over not only the farm but also belongings, which range from grandma’s pie plate to a restored John Deere 4440.
“During this discussion, everyone should provide input on what should happen, even though grandma and grandpa should make the final decision,” he says.
A family meeting should be held in a neutral location and not during a family holiday or at grandma’s kitchen table where there is a pecking order. Vyhnalek also recommends recording the meeting, taking notes and being willing to have more than one meeting.
Once a decision is made, Vyhnalek warns against bringing it up again.
“Never allow something to be discussed a second time once a decision is made. Don’t go back,” he cautions.
Determining how to treat each party fairly can also be a challenge.
“Is the on-farm sibling being fairly treated for the sweat equity they have contributed over the years? Honest evaluation of this is key,” Vyhnalek says. “Avoid feelings of entitlement and mistrust.”
“Also, it is important to realize that each sibling’s perception of input may be different, depending if they were an on-farm or off-farm sibling,” he notes. “It is important to keep an open mind and hear and consider both sides.”
Beware of the sweetheart deals. Vyhnalek shares one instance where the off-farm siblings found it unfair that the on-farm sibling had only paid his parents $65 an acre in rent when similar land was renting for more than $350 an acre.
Vyhnalek relates, “The off-farm siblings found that to be unfair, and when they asked why, the on-farm sibling says, ‘Because that’s all they ever asked for.’”
“It was not even enough to cover the taxes, so the on-farm son was probably paying them,” Vyhnalek says. “He also probably tore up a pasture and some trees so the pivot could go all the way around. He probably paid for the pivots. When the parent’s house needed new windows and siding, he probably paid for that. He and his wife probably also helped his parents move to town into assisted living and eventually into a nursing home or hospital.”
“That’s why it is important to not assume anything, ask for the whole story. Avoid surprises because it leads to lack of trust, which turns into bad communication,” he adds.
Typically, Vyhnalek says there will be a gap in conception between what the on-farm sibling has contributed to the operation and what the off-farm siblings think he has contributed. The on-farm sibling sees all the technology, labor and money he has contributed for 40 years, while his siblings may think he has ridden on mom and dad’s coattails for 40 years and put some sweat equity into the operation, Vyhnalek says.
Fairness and equality
“What is equal is not always fair,” Vyhnalek says.
One story he shares is about four siblings, whose parents added a fifth share. Each for the four children received 20 percent, with the fifth share of 20 percent going to the on-farm sibling to recognize what he had put into the farm.
“It also helps when he goes to the bank to buy his other three siblings out that he has a 40 percent share. They will be more likely to give him the loan,” Vyhnalek explains. “I’m not saying this is the way to do it, but I am pointing out we have to get creative to find ways to split it up fairly so they will still get along in the end.”
Gayle Smith is a correspondent for the Wyoming Livestock Roundup. Send comments on this article to email@example.com.