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Published January 09, 2012, 12:04 PM

Musical chairs, farm transition

Now more than ever, area farmers need a plan to pass on their farm to the next generation, according to a farm estate planner.

By: Jonathan Knutson, Agweek

DEVILS LAKE, N.D. — Now more than ever, area farmers need a plan to pass on their farm to the next generation, according to a farm estate planner.

Even farmers with an estate plan may need to update it because of soaring land values, said Mike Baron, owner/manager of Great Plains Diversified Services in Bismarck, N.D.

Average land values in North Dakota have seen double-digit increases in each of the past three years, inflating the value of estates, he noted.

“You think this is blowing up your estate plans? Holy cow, it’s killing them,” he said.

Baron spoke Jan. 3 at the annual Lake Region Extension Roundup in Devils Lake, N.D. The two-day event concluded Jan. 4. An estimated 600 to 700 people attended each day of the show, which was sponsored by the NDSU Extension Service and the Crop Improvement associations in six counties.

Many older farmers today don’t fully recognize how much the world has changed, Baron said.

“I find that most people who come in and talk with me, their head is still stuck in the 1960s,” he said.

The way in which a farm passed from one generation to the next in the 1960s isn’t feasible today, he said.

Older farmers typically underestimate the financial value of their farming operation and overestimate the ability of their children to avoid squabbling over their parents’ estate, he said.

Baron used the analogy of musical chairs, with $1 million in cash placed on a table in the middle of the chairs.

“You start the music and your four kids walk around the table. When the music stops, what happens? Are they going to get along? Will three of them say (to the fourth) ‘That’s yours. Take it.’ Do you think that’s going to happen?” Baron said.

“When the farm was worth $300,000 or $400,000, there wasn’t that much to fight about,” Baron said. “Now there’s a pile of millions on the table. How good are your kids?

“That’s the reality of farming. As we add more zeroes, as we add more sophisticated equipment, as we add more value, all we’re doing is increasing the probability of fights,” he said.

Mistakes, mistakes

Farmers and ranchers can make several mistakes in trying to pass on their operation to the next generation, according to material provided by Baron.

One of the mistakes is dying without a valid will. Farmers who die without one die intestate, which allows the state to split up their estate in a way that’s unfavorable to the heirs.

Another mistake is creating a plan, but not updating it in response to changes in tax laws, welfare laws and family circumstances.

Farmers and ranchers also can err in how they distribute their assets, particularly if they have several children and one child farms and the others don’t.

Equally dividing assets, including farm assets, among all the children isn’t workable. The farm probably doesn’t generate enough profit for the farming child to rent or purchase the land that his siblings inherited, according to Baron’s material.

Underestimating how long older farmers will live also can undermine estate planning, Baron said.

Other speakers, topics

Both of Roundup’s two days featured about two dozen speakers, most of them Extension Service or commodity group officials. Topics ranged from changing soil salinity with tiling and corn growing strategies to cell phone applications in agriculture and the outlook for new varieties of small grains.

Farmers and others involved in agriculture can benefit from cell phone applications, or apps, but development of such apps is still in its infancy, said John Nowatzki, agricultural machine systems specialist for the NDSU Extension Service.

Nowatzki’s advice for anyone interested in learning more about cell phone apps: pick the brain of someone already using them.

Bryan Hanson, agronomist with the NDSU Extension Service Langdon Research Extension Center, presented 2011 performance results for a number of small-grain varieties.

More information on small grains in North Dakota:

This article is by Forum Communications, which owns Agweek.