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ANNUAL REVIEW: Farm successions plans, especially during times of depressed farm prices, should be reviewed annually, say farm advisers.

Making estate planning adjustments in a tough economy

Farm & Family: If lease or rent payments are part of your retirement plans and cash flow is tight, your succession plan may need updates.

In a difficult economy, clients often ask what should be done to adjust their farm succession plan. Since each plan is different, there is no standard answer.

First, we advise that they review their plans on an annual basis as part of a regular maintenance program. They should review the terms that provide the farming beneficiary with the equipment, machinery, buildings, grain bins and farmland upon the client’s incapacity and death. They should focus their review on:

• lease and purchase agreements for the equipment and machinery
• rent and purchase agreements for the building site and grain bins
• rent and purchase agreements for the farmland

The operation should have sufficient cash flow to support each of these agreements. If the operation cannot support these, and the beneficiary does not have access to other funds to cover the costs, the client should make changes to the succession plan.

The client should be sure any changes will work with the overall goals of his or her estate plan. For example, if the client is expecting to use the lease or rent payments as a source of income during retirement, or the purchase price was expected to equalize the distributions to the other nonfarming beneficiaries, reducing price may not be an option. The client should be aware of the overall effect.

For the equipment and machinery, we often recommend extending the term of the payments and reducing the price. Oftentimes, the equipment and machinery will need to be leased or sold for less than market value.

For the building site and grain bins, the client again should look to extend the term of payments and reduce the price. Again, the price may need to be under market value.

There are a number of options to adjust the rental rate and purchase price for the cropland. The plan should provide a right to rent the cropland at a reasonable rate upon incapacity and death. Many clients will base the rent calculation on a percentage of the county average. Other options include share leases and flex leases. Each of these leases tie the rent payments to the yield and grain prices.

When providing the right to purchase cropland, the terms of the sale should be adjustable to accommodate the market conditions. This includes the price calculation, interest rates and the term of payments. Options may include basing the sale price on variations of the taxable market value, appraised value and use value. Additionally, the client can extend the option period to elect to purchase to give the beneficiary more flexibility.

Balzarini is an attorney at law for Miller Legal Strategic Planning Centers, P.A. Email your questions and comments to Miller Legal at [email protected].



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