When is enough 'enough'?
Myron Friesen discusses how "enough" money changes over time and how that might impact estate planning.
When I was a kid, I remember doing a lot of work for $5 per hour. I thought that was great at the time. Was that enough? At the time I sure thought it was and I worked as many hours as I could.
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As a parent, I paid my kids $10 per hour when they were younger and then as they grew older I slowly raised that rate every year to eventually reach $15 per hour. Was that enough? I thought so and I think they did too.
Now I hear people say that $15 per hour is not enough but I also know people who get paid $30 dollars per hour and they say that is not enough and I know people know people who make $200 per hour, and they say that is not enough. So what is enough?
With investments I know people with $50,000 and some with $500,000 and still others with $5 million invested. Are any of those numbers enough? When is enough, enough?
With farming, I know people who own 160 acres, and some of them do not think that is enough. I have also have clients with 500, 1,500, and 5,000 acres and some of them do not think that is enough. So what is enough?
Every time we have an increase in land prices I get a few calls about previous planning that had been done and now parents are wondering if all their children will get enough. Well, that is a good question. Let me think about the situation. This family has an off the farm child who has a pretty good job and $300,000 house and the parents' current plan will give them more than another $1 million. Isn’t that enough?
Recently I had a meeting with another client, and we had done their planning when land was $6,000 an acre, and now they tell me land is selling around them for $16,000 an acre. I am asked what their concern was because I was not sure. We started by quickly outlining what their existing plan was, and they understood it perfectly and they liked how everything worked.
Then we put in the new numbers if they “updated” their plan. They saw the “new” numbers. As expected the two non-farming heirs would get more than before, and the farm heir would have the land plus $7 million of debt and a land payment of over $700 per acre for 30 years after their death. They looked at the white board for a while and shook their heads.
I then wrote this on the board, “What concerns you more: 1. That your two non-farming heirs are not getting enough with your current plan 2. The “new” plan would not cash flow for your farming heir?"
Mom, said “both.” Dad said “No. 2.” However, they both knew the only way their farm would stay together was if it cash flowed for their farming son. Their current plan already had the two non-farm heirs getting a lot. Their decision was simple. Enough was enough.
But just to be clear I asked them one more question. I said, “As I recall you bought some land for $6,000 per acre about when we were doing this plan, is that correct?” “Yes,” they answered. “It’s a good thing we bought that.” So, then I asked, “What happens if the seller of that land would knock at the door and now say $6,000 was not enough. He wanted another $10,000 now.” They said “no way, we set the price and $6,000 was enough.” Hmm, that is interesting. Silence was golden. They nodded their heads again. There will not be any changes to that plan.
Now I am not saying that plans should never change or ever be reviewed but sometimes sometime enough is enough, isn’t it? I’m just asking.
Myron Friesen is the co-owner of Farm Financial Strategies Inc. in Osage, Iowa. He can be contacted at 866-524-3636 or firstname.lastname@example.org.