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Succession Planning

If you ever have a chance to hear Dr Ron Hanson, Univ of Nebraska speak on this topic it will open your eyes as to how narrow minded and cruel relatives, most especially siblings can be towards "the family farm".
 
I haven't heard him speak. There is a woman in Iowa who specializes in this. Can't remember her name. I did consult Kevin Spafford who is with a company in California that does succession planning. He is/was doing a series on AgWeb.com. I went into more detail with him. He wanted to write an article for Farm Journal featuring my family's farm situation. He said we were the worst example of passing on the farm he had ever encountered. I eventually declined the offer for fear of creating more issues than we already had. What's the real kicker is a very influential accounting firm in the state put this "plan" together.
 
When gregs dad wanted us,one boy in a family of six to take over the place,we said on one condition....we pay going rate for the land AND its all on paper.We just paid the land all off 2 weeks ago,and NOBODY in his family could rightly complain....oh they tried but really had no ground to stand on...WHEWWW. We seen our nieghbor ranch with his dad all his young and grown life only to loose ALL of it to his sisters when dad died....GET IT IN WRITING!!!!!!


Pure Country,if your needing pasture land...give us a call.... :)
 
I was hoping this thread would give us some more ideas and not just horror stories. We used insurance in my folks plan to pay out my sister. I don't know where we are going with the fellow we are working with. We have three kids and two would like to ranch :???:
 
Big Muddy rancher said:
I was hoping this thread would give us some more ideas and not just horror stories. We used insurance in my folks plan to pay out my sister. I don't know where we are going with the fellow we are working with. We have three kids and two would like to ranch :???:
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BMR - this is a long one written while you were sound asleep last nght! 8)

The laws are different between north and south of 49

I am north of the border.

Most of us do not usually get into the personal finances - but I will hit you with this as an idea that we used.

Here is a small portion of what we do:

Wife and I bought a last to die policy for about 2 million. Beneficiaries are the kids as per the instructions on the policy which matches those in the living wills.

I also bought a policy for first to die - not as big, but enough to support myself or my wife if either of us was widowed - and eventually that will happen. It was only 250,000 when I bought it but I think it is now almost 325,000 - we are each the primary beneficiaries - but the kids split this one evenly if we die together.

I bought the first to die to keep the place and keep the family on the place if I died - wife dies I can manage the place - but with a couple of small kids she could not have run the place and raised them.

All are with a company called London Life and at the time it was truly a stretch to buy them

We bought what are called 20 Pay policies - pay for 20 years and never again - very expensive - and provides the best return on our money for us - but we only have two more years or so to go and it is done. We decided to pay for the entire 20 years on the policy to maximize the benefits although we could have quit and let it run itself after about 10-12 years - we liked watching the value of the death benefit rise - AND the value of the available annual cash income rise with it. We have never touched the cash value.

If we chose, we could stop paying today and it would go well.

I will talk about the last to die policy - the other I am open to discussion but it makes for a lot of typing. I will also talk a bit about how it all came about.

We had several accountants look at us some years ago and they all told us insurance was a bad way to go - after some serious looking I realized they had their heads up their asses and were actually trying to keep me in their pockets. Many. many accountants consider insurance companies as competition because they will often do the entire succession plan for you at no cost if you buy their insurance - lost money to the accountant.

I am sure I have just pizzed off at least one accountant here - but that was our experience. My accountant today tells me he still has that attitude at times - I do use him for other duties.

Those of you out there with a different experience - good for you.

Accountants are smart people - but they do taxes and such - insurance folks do insurance - I would never go to the mechanic to get my teeth fixed so why would I go to an accountant to discuss insurance? That would just be so much bullschitzen in my opinion. Go to the pro for professional advice - all others - no matter the paper on their wall - are triflers.

We dropped those accountants and found a responsible insurance agent - we are still with her.

We shopped insurance all over the country and decided Term Insurance (cheap) was good for us for some things, but for farm succession it HAD to be PERMANENT insurance.

If we chose we could draw about $40K - probably a bit more but I am a long ways from that piece of paper at present - a year on our insurance policy tax free for the remainder of our lives - and it will grow as we let it sit in the policy and do not take it out.

It is worth about three million if we die today as it has increased in vallue over the years.

Kids get it all when we die - one gets the land and SOME cash - the other gets the rest of the cash - which as you know comes tax free. Youngest daughter and husband to be want to stay on the place so they get the land and additional assets.

So farm transfers to one with some money AND NO DEBT - other gets a nice tax free cheque.

Oldest girl and her intended are well set up in careers that are recession proof and doing better than all the rest of us combined - so they are staying where they are - and very happy to do so.

My parents are still alive - wifes parents are still alive - wife and I have a last to die insurance on them all for ???? few hundred thousand death benefits - they are all in their late 70's now - we are not in a hurry to collect the money, but it will come as time moves forward.

Guarantee we will all die someday.

Running the numbers we have spent far less than the value of the insurance and will have made a very, very nice return on the "investment".

Plus - and this MUST be factored into the return on the investment - we had this death benefit coverage from day one of signing the contracts - this cost may very well have hurt our investment returns over some smart guru stock advisor - but if I had died three years in to the plan - I still had the safety net for the then VERY young wife and kids - something that MUST be taken into account - they could never have held on without me at that time.

Our income that we could take from this policy would be - under Canadian law - tax free and in a few years could be more than 50 thousand dollars a year.

In real dollars I would have had to have an investment portfolio of around 750,000 dollars - I suppose more today under present returns - to maintain this and keep the principal.

Our insurance costs for the past 17-18 years has run in total somewhere around 150,000 - 165,000. It has been a decent run and the nice thing is that when I get the old age pension and our Canada pension - and then do the taxes - under todays rules that insurance income will be considered tax free. No government claw backs.

Something the damned accountants did not tell me - I found that out myself. We borrow against the policy - do not touch the principal death benefit and the cash portion we take out is paid off against the death benefit when we die. At the rates I am talking about taking the money out - the death benefit - continually GROWS! If we wanted more money we could take it and reduce the death benefit - we might and we might not - but bottom line is there is a tonne of cash for the kids. And we live very well to boot.

This also becomes important if you consider the cost of an old folks home - some of us will go there - do you want to go into one that is your choice, or one that is the governments choice? The money will decide for you. I know the gals live longer - but I would like to think my wife and I will have the care of OUR CHOICE when it comes time.

If I am going to live longer than her, I would like to live in a nice one myself - and it is NOT cheap.

Some will shake their heads but we decided a long time ago that our children would not be forced to sell our place to pay our bills and see all the work we have done go to someone else.

On top of this we review it each and every year.

We sit down with the kids, our lawyer (costs me 200 bucks), our insurance agent (free)and our accountant (free) and the kids - all in the same room at the same time - no phones and no cell phones - it takes about two to three hours total time.

We do it in the lawyers small meeting room, utilize his secretary and all her skills, and she prints up and diesperses all the meeting minutes and so on. So 200 bucks is a deal as far as I am concerned.

Being the person I am, I do up the agenda, run the meeting and then do the minutes - just like a real meeting - this is BUSINESS!! To us it is big business.

I run it like a board meeting and I go with the agenda I presented to all player one month in advance so they can prepare. We keep minutes and we hold them in several places - all attendees get a copy, the safety deposit box gets a copy and one copy goes on file in the office filing cabinet at home with the farm seal stamped to all. All players will sign all documents. All original signatures - no photocopies.

Over kill?

Maybe - but I lost a lot of land to some family member over a "promise".

Never - damnit - never again. And furthermore I will never be party to my family going through what I went through if wife and I are written off in a car accident as I drive to the neighbours house for supper some night - and that happens.

This may not be for all - and many will object to the cost - to which I answer - what about the cost after you leave?

And if you have money in the bank now - and many do - that you are not using - remember - it gets hit real hard with tax when you die - far better to pass it on tax free - through life insurance or gift it out in portions over time.

Are there flaws in this plan?

Yes and even I can pick them out so I am not looking for a critique - I am hopefully starting a discussion - a hijack - as per BMR's thoughts.

But it works for us!!

Might not work for all - but it works for us and it is one idea out of millions - at least you got one on this thread.

Let's see a few others open up a bit - I am always open to an idea or two. And I am willing to change mine if I believe it to be an improvement.

What is your plan?

Finally!!!!!!!!!!!!!!!!!!!!!!!!

NEVER take the word of the person who makes you the "You get it all when I die" promise - you have no idea how fast a big money lawyer and a greedy relative with a set of deep pockets can make that verbal promise worthless.

The person making the promise might very well mean it and that persons word may be as solid as the Rock of Gibralter.

You forget that person is now dead - other factors now come into play - and you may very well have no control over what happens next.

Promises mean absolutely nothing when a relentless family member decides you deserve nothing.

Try standing and pleading your case in less than a couple of hours in front of a judge. I have that T-shirt and walked out a broke and homeless man.

You got the cash to fight that? Probably not.

Get your affairs in order and review them annually.

Your children will thank you - and they will hate you if you do not and it all falls apart - we see this all the time.

Please forgive my ramblings - almost three hours and multiple edits on a middle east computer system requiring about 10 re-boots - all to write this so it can (hopefully) make sense - I am not always good at clearly expressing my thoughts - hope this one worked for someone.

Regards

BC

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True final note goes to BMR - if you have a partner you need to place insurance on each other. You die, the insurance goes to him - he can buy your family out. He dies, the insurance goes to you - you can buy his family out.

Put this in a contract - make this buy out clause legal and binding - this is a very common and accepted practise in businesses with partners.

You can also do this with disabilty insurance to hire someone to replace the person who gets laid up with an injury - also a very common and accepted practise in businesses with partners.

Just one of a dozen possible ways to solve a problem or two - I could come up with more ideas in a heartbeat - just cannot type that much - and people get bored of my tales.

See your lawyer and your insurance people asap if you are concerned - be sure you take your partner with you! No secrets in partnerships.

Take care

BC
 
Thanks BC that was GREAT.
Most of it is pertinent as I live north of the 49th as well. We are working with a ex-lawyer turned investment planned/insurance agent now to get a plan in place. We are using the insurance for my folks plan to pass on the ranch and settle the estate.
We probably should have been on this much sooner but better late then never.
Emotions do tend to get involved and I think that is harded then figureing the financial end of the deal.
 
Big Muddy rancher said:
Thanks BC that was GREAT.



Emotions do tend to get involved and I think that is harded then figureing the financial end of the deal.
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Indeed, B.C. that kind of input was what I was hoping might come out of deja's situation.

And yes, BMr, emotions do get in the way and that is why the whole matter is so easy to put off in the first place.

My wife and I just decided to revisit our outdated will and bring it up to date because of this discussion. Making an appointment for early next week.
 
Big Muddy rancher said:
Thanks BC that was GREAT.
Most of it is pertinent as I live north of the 49th as well. We are working with a ex-lawyer turned investment planned/insurance agent now to get a plan in place. We are using the insurance for my folks plan to pass on the ranch and settle the estate.
We probably should have been on this much sooner but better late then never.
Emotions do tend to get involved and I think that is harded then figureing the financial end of the deal.
Click to expand...

My pleasure.

Shop around for that insurance - there are so many types as to be confusing. If you are doing Term - look at nothing unless it is convertible to permanent - with NO medical required. If the company does not have it go elsewhere.

Permanent insurance - buy nothing that does not have an end date payment.

Universal life - buy nothing that makes you pay forever or limits your investment options should YOU wish to control that aspect - which I do not recommend..

Do not believe investment numbers - any numbers you are shown subtract at least two to three percent and work on those as your target return - that way you are never caught out.

If you do buy mutuals for investment or retirement purposes look very seriously at nothing unless it is a segregated fund. They have certain protections that others do not have.

1. You die, they go direct to the beneficiary - not through the estate. Potentially HUGE tax saving - HUGE!!
2. They usually have a guaranteed minimum value - if they do not I do not buy them - I like a percentage principle guarantee - so should you.
3. Potential creditor protection in event of bankruptcy - provided you did not buy them to protect your money after you realized you were in trouble.
4. There is another guarantee as well - just slips my mind right now.

Regular mutual fiunds do not have the above - if you are in agriculture you need the above!

If anyone tells you to buy something different they are in it for the money and not for you. Those who are in it for the client are gold - keep that relationship.

All of this is expensive and people tend to shy away - but in fact if you max out the expenses today - all things being equal - those expenses will seem pretty small in 10 years or more from now.

All of the above is what we did.

If your planner does not have certification, or your agent does not have certification training - run! Ask to see those certificates and ask them for their license numbers. Planners in Canada - at least up to two years ago - did not need to be certified - but it was out there if they wanted to go to school and get it. Ask if they have it - if not go to someone who does.

Professional certification means they also have to abide by a code of ethics - and if they belong to a major like London Life, Maritime life, Canada Life or similar - the companies ride their asses to keep them up.

No matter who you deal with - shop around in a couple of places before you sign anything. Compare apples and apples at all times - and look for advice and alternatives.

Yeah - far better to start 30 years too late than one millisecond after you have that heart attack or stroke or car accident - then it all triples and quadruples in price - if anyone will even touch you at that point.

Even worse if you are dead - now it all becomes rotten hamburger.

Finally - all of the above is simply my own opinion - so do your homework.

Best to you and the family

BC
 
Fantastic! You said the one most important thing, IMO, you and your family talk. Keep it up. I was helping gather cattle last fall when the rancher rode up by me and told me his son was moving back home to be part of the ranch. He said, "What do I do for him?" My answer was simple, "Treat him like you would want to be treated." I feel, whatever method a family chooses, there is an obligation to our past generations who put these farms and ranches together. Get professional advise. If you don't like what is offered, look elsewhere. It's your family, your future, their future. Don't take our heritage lightly.
 

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