HARTINGTON — Farm families looking for answers to transition and succession joined together last week to explore options at a University of Nebraska-Lincoln Extension workshop in Hartington.
“We know for every eight family farms we lose, we lose one business on Main Street in rural Nebraska,” said Allan Vyhnalek, extension educator. “Along with that thought, studies show every farm family needs 1,500 acres to survive.”
Those are sobering thoughts for rural Nebraska, Vyhnalek said, as he talked to participants about passing the family farm operations, whether it be dairy, row crop, cow-calf or beef, on to the next generation.
“We all know we will eventually retire, so why don’t we make some plans,” Vyhnalek said.
Vyhnalek offered tips about how to start, what to do and what to expect. After congratulating everyone for coming, he said it was not an actual estate planning session but a program to start farm owners thinking about the future transition so when an owner goes to a professional, he doesn’t waste time and dollars.
The group examined why people don’t like to plan. Three main challenges pop up: It’s too complicated; people don’t like to plan, it’s mental ‘work’ and many aren’t ready to face their own mortality.
“No one can predict their demise but, whether they like it or not, it will come,” Vyhnalek said.
Three types of planning are crucial as a career or individual’s life comes to an end. There needs to be end-of-life documents, including a health care directive through a power of attorney (POA) and also a financial directive through a POA. The next need is an estate plan or, simply put, what will happen to “my” stuff. Finally, business succession planning is the final document and details putting the next generation in place.
“Key to this especially in a family farm situation is communication,” Vyhnalek said.
He said the previous generation, being of stout Polish or German or Slavic lineage, assumed several things.
The business is their business and it does not get shared with anyone. They assume the kids all get along great now and that will continue. They know their children will want to keep this asset in the family even when mom and dad are gone. Or the kids will just have to figure out how to divide the farm — they’ll be gone and they don’t care. They have four children and their assets will be divided 25% to each one equally. That’s the fair way. Finally, a parent says to one sibling, someday this will all be his or hers and this is a slippery slope.
In reality, owners need to think through the process of handing down their assets. Leaving all assets to the children to “figure out” may be the start of World War III. Also, a farmer who is lucky enough to have a son or daughter who has lived on the farm all their life, helping Mom and Dad, might not think an equal split is fair. One needs to think about sweat equity.
“We have talked to attorneys in western Nebraska who use a certain tool when passing on the family ranch,” Vyhnalek said. “Their guideline is for every year a son or daughter has stayed on ranch and worked is equivalent to a 1% share in the ranching operation.”
Family meetings are a good way to start the conversation. Set ground rules and plan carefully to avoid disaster. A good rule of thumb is to never allow criticizing of ideas but encourage all to have input, Vyhnalek said.
Put conversation limits in place so each person gets one chance to discuss any one item before everyone gets a second time to talk. Avoid only one person talking all the time. Always remember the difference in perception between siblings.
Attorney Tom Fehringer of Columbus followed the extension presentation and addressed concerns and needs of the participating families. He said to remember all families are dysfunctional and inevitably differences will rise to the top like cream and sometimes boil over.
It will be important to get to the bottom of what makes people tick and always remember its more heart than science.
“If you remember nothing else about today, remember to get a POA (power of attorney),” Fehringer said. “Everyone 18 years of age and older should have one as hospitals are requiring those legal documents before treating any individual.”
Vyhnalek gave homework assignments to the families at the workshop. Get a “team” together including a lawyer, ag banker, financial adviser, CPA and insurance agents. Make a list of assets, what you own and how you own it, what you owe if anything, and what you want to do with your assets.