Securing Your Farm Legacy through Strategic Succession Planning

As estate planning attorneys with a deep appreciation for the agricultural heritage of Minnesota (and many of us having a farm connection), we take seriously our role in helping our clients develop and implement a strategic plan for the future of their farm and the legacy it holds.

Farm succession planning is a crucial aspect of estate planning that deserves careful consideration. In fact, it is often the first step in your farm succession plan because it addresses so many foundational issues such as who will be responsible for managing the farm in the event of your death or incapacity, how estate taxes will be managed or reduced, how non-farming heirs will be treated, and the like. Farm estate planning is not just about passing on property or filling in the blanks on a basic will; it is about preserving a way of life, ensuring the prosperity of future generations, and making the farm better for the future.

One of the key challenges faced by many farm families is the high cost associated with acquiring and maintaining farmland and equipment. For the past few years, we have seen farmland prices undergo hockey-stick growth while used equipment is actually increasing in value in many cases. This, coupled with on the whole a strong farm economy, has resulted in most farmers’ overall net estate value climb to historic amounts. At the same time, the Minnesota estate tax exemption has been frozen and protects fewer and fewer acres.

This makes the transition of a family farm to the next generation a complex and, in some cases, costly endeavor. Consider, for example, that land values are often appraised at around $12,000 per acre (the method in which estate values are determined). With Minnesota’s estate tax exemption of $3 million, it would only take 250 acres before assets are potentially exposed to the Minnesota estate tax. Keep in mind, there are a number of strategies that can be unlocked with trust-based estate planning that would allow us to utilize the family farmland deduction, marital and credit shelter planning, and the like.

We also must consider the high cost to farming heirs if they were forced to purchase family farmland at these historic values. For example, a farming heir purchasing 250 acres at $12,000/acre (which is what they may be required to do if parents do not plan properly) could end up with yearly payments of $193,256.00. And that is assuming they can purchase it at 5% interest and amortize the payment over 30 years – a very generous assumption. This payment results in $773 per acre per year. For 30 years. That amount is also before paying property taxes, insurance, maintenance, repairs, and the like for the land. That means that the breakeven point on corn, for example, might start at $12.00 or more per bushel. Needless to say, this is not only unsustainable, it is a plan that is dead on arrival for almost all farm successors. Sadly, many farmers have set up their farm successors for this exact scenario because they have not taken the time and made the investment to create a more strategic farm succession plan with a qualified farm and estate planning attorney.

Succession planning involves more than just distributing assets. It requires a strategic approach to address the unique challenges of farming operations. Properly executed farm succession planning can optimize the transfer of assets, mitigate tax implications, and ensure a smooth transition that enhances the farm's sustainability. Estate planning attorneys working with farmers must understand and appreciate the complexities and economics of modern farming enterprises.

At Wagner Oehler, Ltd., we understand the intricacies of farm succession planning because we do it every day. We’ve been doing it for 50 years. Our experienced team is well-versed in creating comprehensive estate plans tailored to the specific needs of farm families in Minnesota. We are committed to helping you navigate the complexities of succession planning to continue your farming legacy.

As you contemplate the future of your farm, it is essential to recognize that a well-thought-out estate plan is a critical component of securing your family's future. This investment is a small cost compared to the significant risk in not completing your farm succession plan properly. The attorneys at Wagner Oehler, Ltd. are dedicated to guiding you through the process, ensuring that your farm legacy is preserved for generations to come.

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