OSU's Shannon Ferrell Says Great Estate and Succession Planning Must Be More Than Just a Few Legal DocumentsThu, 11 Feb 2016 05:33:22 CST
Passing the farm or ranch to the next generation requires more than just a solid estate plan. Speaking at the Oklahoma Cattlemen's Foundation Succession and Estate Planning seminar Wednesday, Oklahoma State University Department of Agricultural Economics Ag Law Professor Shannon Ferrell said the process is about more than paperwork and numbers. While landowners need to have their details outlined in an estate plan, he said stakeholders also need to have those crucial conversations with all family members and outline how the transfer of management will take place over time.
Radio Oklahoma Ag Network Farm Director Ron Hays interviewed Shannon Ferrell during one of the breaks at the Seminar. Click or tap on the LISTEN BAR below to listen to the full interview.
As he engages with farmers and ranchers across Oklahoma and around the country at similar events, Ferrell hears several key concerns. He says producers want to make sure their family can keep the farm operation together for the next generation and that they can keep their family engaged. Landowners also have concerns on how to move forward with an estate plan, will or trust. In looking at research, he adds the most successful businesses have a plan in place that will make sure the assets, business and values are transferred to that next generation, along with making sure the next generation is prepared, willing and able to take their role in the business.
While an estate plan is a critical piece of the transfer process, Ferrell believes there are many other steps beyond that. He said land owners have to really want to make sure this business is robust enough to make that transfer to the next generation. The estate or otherwise known as the “death tax” has been often been the biggest regulatory hurdle families face in transferring the farm to the next generation. Ferrell said the latest estate tax reforms have improved in recent years. For example in 2016, he said the exemption level has been raised to $5.45 million dollars. With a spouse, the combined exemption totals $10.9 million dollars before the estate taxes kick in. If landowners have an operation larger than that, there are significant penalties. Any amount over the exemption level will face a 40 percent estate tax rate.
Estate plans should be updated regularly. Ferrell said once you have a transition plan in place, this plan needs to be reviewed and updated. He recommends landowners review the document every time there is a significant event. This includes anytime the stakeholders change through birth, death, marriage or divorce. This also includes anytime land or a new enterprise is added. Ferrell recommends reviewing the estate plan every two to three years to make sure none of the tax issues or laws have changed.
According to the U.S. Ag Census, the average age of the American farmer is around 58 - 60 years. Ferrell said in agriculture this creates a lot of "sandwiching". For the older generation, the farm or ranch is their retirement investment, so he said with all of their eggs in one basket they are really concerned with protecting their one basket. That makes them naturally reluctant to give some of the ownership or management control to the next generation. Without the opportunity to manage, he said the next generation doesn’t get any management experience, which perpetuates the feeling they aren’t going to be ready for that management. The solution is a generational plan. If the next generation comes into the operation, Ferrell said we have to make sure the operation is profitable enough, big enough and efficient enough to support multiple generations. This requires long term planning for the next 15 to 20 years of the operation.
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