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Farm Transfer and Estate Planning for Minnesota Farm Families

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Farm Transfer and Estate Planning for Minnesota Farm Families ...

    Farmers’ Evaluations and Behavioral Changes

    Due to Attending Farm Transfer and Estate Planning Seminars

    Gary Hachfeld and Kent Olson

    Hachfeld is a Regional Extension Educator, University of Minnesota Extension, and Olson is a Professor,

    Department of Applied Economics, University of Minnesota.

    email addresses: hachf002@umn.edu, kdolson@umn.edu

    Selected Paper prepared for presentation at the National Extension Risk Management

    Education Conference, Phoenix, Arizona, April 17-18, 2007

    Copyright 2007 by Hachfeld and Olson. All rights reserved. Readers may make verbatim

    copies of this document for non-commercial purposes by any means, provided that this copyright

    notice appears on all such copies.

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    Farmers’ Evaluations and Behavioral Changes

    due to Attending Farm Transfer and Estate Planning Seminars

    Gary Hachfeld and Kent Olson

    Minnesota has 79,300 farms; the average age of the principal operator is 52.9 years of age (Minnesota Agricultural Statistics Service, 2006). Ninety-one (91) percent of those farms are

    sole proprietorships owned and operated by farm families. Total assets held by those families

    including real estate, livestock, machinery, and crop inventories is $89.2 billion. Minnesota has

    27.4 million acres of farmland.

    Even without asking the farmers, one could surmise that issues surrounding farm transfers between generations and estate planning are and should be extremely important now

    and into the future. Surveys of farmers show this is more than just a conjecture. A survey by

    Iowa State University found more than 50% of Iowa farmers had no estate plan and 71% had not

    named a successor (Duffy, Baker, and Lamberti, 2000). They also found that a mere 20% had

    spoken to a banker, 30% to an accountant, and 28% to an attorney about succession and estate

    planning. A survey by Successful Farming magazine showed that 30% of farmers had not even

    discussed their plan with their family (Tevis, 2003).

    Not only have farm families expressed a need for information and help with farm transfer and estate planning, other agricultural professionals have voiced concern as well. Ag lenders,

    attorneys, accountants, and others who deal with farm families have expressed strong support for

    programming to help farm families with the farm business transfer and estate planning process.

    As a result of the survey data and the information requests received by University of Minnesota Extension Educators, it is clear Minnesota farm families are searching for strategies

    and assistance with accomplishing their farm transfer. Their questions relate to reducing or

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eliminating tax consequences during the transfer, transferring the farm in light of long-term care

    issues, farm goals, keeping the farm in the family, starting the next generation in farming while

    being able to retire comfortably, treatment of all heirs but especially non-farm heirs, power-of-

    attorney, and life insurance issues.

    To address this apparent lack of planning, lack of intergenerational communication, and the demand for information, the Agricultural Business Management group within University of

    Minnesota Extension developed a farm transition and estate planning program. The focus of the

    Extension educational program is to assist farm families with their farm business succession and

    estate planning. The next section describes the program development and the evaluation process.

    The results of the end-of-meeting evaluation survey related to changes in participant’s

    understanding and resulting plans are presented in the following section. Results of the post-

    meeting evaluation process related to business transfer and estate planning progress, barriers

    farm families may have encountered, and the usefulness of the program and workbook is also

    included. The last section of the paper presents our conclusions and lessons learned from

    conducting the workshops and analyzing the survey.

    Program Development and Evaluation Process

    The education program was designed to address the human and financial risks arising from the lack of farm succession planning, lack of intergenerational goal setting, and lack of

    implementing a farm transfer and associated estate plan. Topics included in the workshops are:

    establishing personal, family and business goals to begin the transfer process; transfer strategies

    including examples; financial considerations when transferring the farm business; tax

    considerations during the transfer process; treatment of heirs; estate planning issues and

    strategies; developing a written transfer plan; and establishing a transfer and estate planning team.

    Program curriculum and promotional materials were developed by Regional Extension Educators with University of Minnesota Extension. The team included three Educators with

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extensive background in farm transfer and estate planning subject matter and two Educators who

    have extensive subject matter background in agricultural taxes and farm management as well as

    being Enrolled Agents with the IRS.

    In addition, the Regional Extension Educators formed collaborations with other professionals to insure the program content was up-to-date and accurate. A certified financial

    planner was included as a collaborator to insure accurate, up-to-date information in the tax and

    financial planning areas. A second collaborator was a local attorney who specializes in business

    transfer, estate planning and elder law for reviewing and validating the information related to all

    aspects of estate planning, power-of-attorney, trusts, health care directives, and elder law issues.

    A third collaboration was with the Minnesota State College University System (MnSCU) Adult

    Farm Management Instructors to work one-on-one with program participants to complete a

    FINPACK long-range farm business analysis to help the family assess whether or not their farm

    business will financially support multiple families during the transfer process.

    Program content was delivered via face-to-face, interactive workshops. The workshops were five hours in length with lunch included as part of the meeting. Presenters utilized

    PowerPoint slides and a comprehensive 200 page workbook as the main delivery tools.

    Participants received a copy of the workbook which included all PowerPoint slides; twenty-five

    information sheets on farm transition, estate planning, and farm financial management; website

    addresses for additional information; and a set of worksheets used during the presentation.

    The agenda for each workshop was as follows:

    ? Welcome, outline for the day & registration

    ? Preparing to transfer the farm business establishing personal, family & farm

    business goals

    ? Major tax considerations when transferring assets

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    ? Overview of farm transition strategies

    ? Financial considerations in transferring the farm business

    ? Estate planning issues and the transfer process

    ? Treatment of heirs and financial assistance

    ? Developing a written transition plan

    ? Additional questions

    ? End-of-meeting evaluation

    The workshops were organized under a system referred to as the “sponsorship model”.

    Local businesses that had professionals, such as lenders, working with farm families chose to

    sponsor a program. The sponsor selected a meeting date and location, arranged for the meeting

    facility, they recruited participants, they organized all refreshments and meal arrangements, and

    they paid a flat sponsorship fee to Extension to deliver the program.

    Following each workshop, participants where asked to complete an evaluation focused on whether or not they had better understanding of farm transfer and estate planning concepts and

    strategies as a result of attending the workshop. In the first section of the evaluation, participants

    were asked to use a Likert scale numerical rating system of 1 for strongly disagree through 5 for

    strongly agree to indicate their change in understanding of the following key educational points

    due to attending the workshop:

    1. I better understand the need for clear goals and communication as part of the transfer

    process.

    2. I better understand the strategies available for use in a transfer plan.

    3. I better understand the importance of assessing the financial strength of the farm

    business.

    4. I better understand tax issues related to the farm transfer process.

    5. I better understand wills, trusts, and estate planning strategies.

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    6. I better understand life insurance, power-of-attorney, and health care issues as part of

    the process.

    Participants were also asked to respond to a set of questions related to the status of their current farm transfer plan and personal estate plan. They were asked whether they currently had

    an up-to-date estate plan, an up-to-date farm transfer plan, and if they did not have a transfer and

    estate plan whether they, as a result of attending this workshop, plan to begin the farm transfer

    process by developing a transfer and estate plan that year.

    In the fall of 2006, six months following the workshops, participants were surveyed again to determine their progress with their farm business transfer and personal estate plans, barriers

    they may have encountered, and how useful the program and workbook.

    End-of-Meeting Evaluation Results

    Twelve workshops were held from November 2005 through April 2006. Five hundred twenty-four (524) Minnesota farm family members from 191 communities, representing 301

    farm business units, attended one of the twelve workshops. Ages ranged from 22 to 89 years of

    age with 49% being over the age of 55. The audience was 33% female and 67% male. Twenty-

    three (23) local businesses were program sponsors. Two hundred ninety-six (296) surveys were

    completed providing a 56.5% response rate for the end-of-meeting survey.

    With regard to improving participant understanding, the workshops were highly successful. Most of the participants indicated their understanding of the main educational points

    of the workshop improved due to attending the workshop (Table 1). Nearly all indicated they

    better understood the need for clear goals and communication. Over 90% said they better

    understood the strategies available for use in a transfer plan; the importance of assessing the

    financial strength of the farm; and wills, trusts, and estate planning strategies. Ninety percent

    (90%) said they have improved their understanding of life insurance, power-of-attorney, and

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health care issues as part of the process. Eighty-seven percent (87%) of the participants said they

    had improved their understanding of tax issues related to the farm transfer process.

    Table 1. Participants’ self-reported evaluation of whether their understanding

     of educational points was better due to attending a workshop.

     % indicating

    Educational point: Median Average Standard “strongly agree”

    score score deviation or “agree”

    1. The need for clear goals and

     communication as part of the

     transfer process 4.5 4.5 0.53 99.0

    2. The strategies available for

     use in a transfer plan 4 4.3 0.56 95.6

    3. The importance of assessing

     the financial strength of the

     farm business 4 4.3 0.61 92.2

    4. Tax issues related to the

     farm transfer process 4 4.2 0.67 87.2

    5. Wills, trusts, and estate

     planning strategies 4 4.3 0.60 93.9

    6. Life insurance, power-of-

     attorney, and health care

     issues as part of the process 4 4.3 0.63 89.9

    Note: 296 participants completed the end-of-meeting evaluations. The Likert score ranged

     from 1 for strongly disagree to 5 for strongly agree.

     Participants were also asked to respond to a set of questions related to the status of their

    current farm transfer plan and personal estate plan. Their responses closely track with the survey

    results mentioned in the introduction. Fifty-eight percent (58%) of participants did not have an

    up-to-date estate plan (Table 2). Eighty-nine percent (89%) did not have an up-to-date farm

    business transfer plan. On the positive side, 81% stated that, as a result of attending the

    workshop, they would begin the farm transfer process by developing a transfer and personal

    estate plan that year.

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    Table 2. Participants’ self-reported status of their current farm transfer plan and

     personal estate plan.

     Response Percentage Question Yes No NA* Do you currently have an up-to-date estate plan? 42.2% 57.8% 0.0% Do you currently have an up-to-date farm transfer plan? 5.4% 88.9% 5.7% If no, as a result of attending this workshop, I plan to begin

    the farm transfer process by developing a transfer and 81.4% 4.3% 14.3% estate plan this year?

    Note: NA for the transfer plan was a result of participants being the entering generation no

     farm to transfer. NA for beginning the process was a result of participants who did not

     have a farming heir.

    When asked to write down two things they would change in the program, the most

    popular response (noted 30 times out of 296 total responses) was to make no changes in the

    program, that it was good the way it was. The next most suggested change (noted 16 times) was

    that the workshop was too long and perhaps needed to be divided into 2 sessions. The third most

    suggested change (noted 11 times) was to spend more time on wills and trusts. Other suggestions

    (and the number times noted) included: more time on tax issues (5), help finding attorney and

    other professionals (4), more examples (3), more time for discussion (3), more time on LLCs (2),

    more time on power-of-attorney (2), more examples on farm transition (2), costs of doing “all these things,” (2), have an attorney at the workshop session (2), shorter presentation (2), shorten

    the tax discussion (1), more on fair versus equal in treating family members (1), more time on

    long term care and health insurance (1), and what to do when no direct heirs (1).

    When asked to write down what they thought was the best part of the workshop, the most

    popular response (noted 40 times out of 296 total responses) was the discussion on trusts. The

    next most frequent response on what was best was “all of it” (noted 23 times). Other best parts

    mentioned frequently (and the number of times noted) were the workbook (22), discussion on

    wills (21), and the discussion on goals (10). Other best parts mentioned less frequently (and the

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number of times noted) included good presenters (7), estate planning (7), unbiased information

    (5), tax issues (4), transfer strategies (4), worksheets and the steps to individual plan (4), and the

    discussion of power-of-attorney (3). Several parts were mentioned by 2 respondents: long term

    care, good examples, fair is not always equal, transfer plan example, non-farm heir discussion,

    and the humor and cartoons. Several parts were mentioned by 1 respondent: property ownership

    discussion, list of resources, probate discussion, HIPPA discussion, health care directive, LLC

    discussion, direct answers to questions, business structure discussion, shows where and how to

    get started, basis discussion, financial position of farm, communication with non-farm heirs, and

    family communication.

    Post-Meeting Evaluation Results

    Nine months following the final program for the year, farm family participants from the 301 farm businesses represented, were surveyed. They were mailed a survey focusing on their

    progress in developing and implementing their farm business transfer and personal estate plan,

    barriers they may have encountered during the process, and the usefulness and their perceived

    value of the program and workbook. A total of 152 surveys were returned representing a 51%

    return rate.

    Participants were asked if they had begun developing their farm business transfer plan and if so, how far had they progressed. A total of 59% of farm families (Table 3) had begun the

    transfer planning process. They reported that 57% were 25% completed with the process, 18%

    were 50% complete, 12.5% were 75% complete, and a total of 12.5% had finished their farm

    transfer plan and had begun to implement the plan.

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Table 3. Have you/your family started to develop/update your farm business transfer

    plan?

     Response Percentage

     Yes No 25% 50% 75% 100% Begun the process 59.4% 40.6% Percent progress toward 57.1% 17.9% 12.5% 12.5% completion

    Similarly, participants were asked if they had begun the development of their personal

    estate plans. Fifty-seven percent (57%) of participants had begun the process as of the survey

    (Table 4). A total of 55% were 25% completed with the process, 20% were 50% complete, 18%

    were 75% complete, and a total of 7% had finished their personal estate plans.

    Table 4. Have you started to develop/update your personal estate plan?

     Response Percentage

     Yes No 25% 50% 75% 100% Begun the process 57.3% 42.7% Percent progress toward 54.5% 20.0% 18.2% 7.3% completion

    Participants were asked to report any barriers they encountered that may have slowed or

    impeded their progress as they were working to complete their transfer and estate plans. Listed as

    the most frequent barriers were finding time to complete the process, difficulty developing goals,

    lack of family consensus including disagreement among heirs, difficulty finding professionals to

    work with on the process, parents not ready to retire or give up control, and “life events” taking

    farm families away for the process. Table 5 lists these most frequently reported barriers to the

    completion of the process and the frequency they were reported by farm family participants.

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