No two distribution plans are the same, because no two farms are the same. But there are some characteristics that may be similar in what I would refer to as a “good plan.” You may even have some of your own items you would add or subtract from this list.
- Clear goals. Sometimes people even state what their goals are in their documents, making it clear that this is how they want things to be in order to accomplish their goals. If goals are not clear, oftentimes heirs have a hard time understanding why something was done.
- There is logic or an explanation for the math. That doesn’t mean everyone has to agree or get the same amount, but at least it could be explained how values were arrived at. Cash flows and income streams are talked about and understood.
- If there is a farming heir in the next generation, the plan must protect the farming heir. Asset values are getting bigger daily and without a clearly defined distribution plan and defined buyout values, the plan could end in disaster.
- There is a claw-back provision. If the farming heir is getting assets based on a discounted value, other heirs may grumble and suggest that heir could sell out and make a windfall profit. Add a claw-back provision for a time period to share that gain with everyone should that ever occur, and that ends that concern.
- The plan addresses contingencies. Oftentimes Plan A is the main focus, as it should be, but we also know that Plan A is not always the hand that life deals us. Contingencies should be put in place for a variety of “what ifs.”
- The plan faces reality. Sometimes people simply have a hard time dealing with reality. Those realities could be conflicts among their children, in-laws, divorce or the potential for divorce and the need for cash at certain times. When people avoid those realities, things can go sideways or upside-down in a hurry.
- Simple. This is possibly one of my most important criteria for plans. Some families inherently have some level of complication, due to the size of their operation, entities or family members involved, but you don’t have to overcomplicate something that’s already complicated. Sometimes the goal should be to simplify the complicated. Why take two steps when one will get you there? For some reason, sometimes people walk right by the simplest method of getting something done.
- The plan should be cost effective. I’m growing more and more weary of 100-plus page documents that cost a lot when a 20 page document would do the same thing for a much lower cost. I’m seeing more farm families with very expensive plans that they pay a lot for now, they pay a lot to change it and later, ironically, the family pays a lot again at death . Even worse, they can’t even explain what they have!
- There is organization. You should be able to readily access your current will, powers-of-attorney, land deeds, entity documents, insurances, investments, etc. I am amazed at how scattered and unorganized these important documents become for some families.
When I think about it, a good plan is not really that hard to achieve, and it certainly doesn’t have to be expensive, but it does take a little bit of effort. For some people, spending time on this sort of thing is not as exciting as planting a crop. I get that. On the other hand, I think it is time well spent knowing that a little bit of your effort can go a long way in preserving something you have worked a lifetime to accumulate.
Myron Friesen is the co-owner of Farm Financial Strategies Inc. in Osage, Iowa. He can be contacted at 866-524-3636 or email@example.com. This column does not necessarily reflect the opinion of this publication nor Forum Communications ownership.