By EMMA HOPKINS-O’BRIEN

Indiana Correspondent

INDIANAPOLIS, Ind. — Passing a family farm from one generation to the next can be complicated and emotional. At the recent Indiana Young Farmers Conference hosted by Indiana Farm Bureau (INFB), one breakout session walked an audience of young farmers through what to expect during the process.

Polly J. Dobbs of Dobbs Legal Group, who conducted the session, is a farm owner herself who went through the process of succession planning with her own family. She doesn’t sugarcoat the fact that such planning can be tense.

“Fair does not always mean ‘equal,’” she said when explaining various options for farmers wanting to pass down their operations. “Equal tenants in common ownership may set the stage for a family feud.”

In her time working with families to efficiently transfer ownership of their farms to the next generation, Dobbs has picked up on strategies that commonly fail, but also recognizes that there is no “one-size-fits-all” solution. A mistake she has found cropping up many times is family heads doing no planning at all – what she calls the “do-nothing plan.

“If you ignore this, it won’t just go away,” she said. “If you just leave everything to your spouse and he/she gets remarried, then what?”

It’s tough questions like these that are necessary to cover all bases in succession planning. People like Dobbs, who specialize in farm succession specifically, can help.

She said another mistake made in succession is farmers leaving the farm and all its assets split equally among children and their spouses.

“This puts the farm squarely within the marital estate of your child’s potential future divorce,” she said. “A typical will would leave all assets equally to the children. Many times, estate planning isn’t about tax planning, it’s about family dynamics.”

Dobbs said a lucky farmer has one child who wants to return home – but it’s more likely they have at least three children. If the children are left equal assets, the child who actively farms may have to pay cash rent to the non-farming siblings, or the non-farming siblings may out-vote or second-guess decisions made and question the yields acquired by the farming sibling.

If the farming sibling wants to avoid this by buying the other shares of the farm, it could easily become a huge financial burden. In her experience, Dobbs said these scenarios lead to family feuds quickly.

“Is co-ownership at the next generation best?” she asked. “Should your children be in business together? Can they get along well enough to split the cash rent? Do you have a child in mind as a management successor? If not, pursue another plan.”

One solid customizable decision, Dobbs said, is dividing all the money and assets involved, including elements like life insurance policies and separating the operations of a farm from the land – leaving operations to a farming successor – and giving different children direct ownership of different land instead of co-owning.

Putting a “right of first refusal” or “right to purchase” hook on a will allows a farming successor the first right to buy the land. No matter which route is taken, she recommends farmers have this information available before sitting down with a professional to start a plan:

•Documents necessary to address essential questions of farm succession

•An accurate personal financial statement

•Ownership titles

•Face value of life insurance

•Current beneficiaries

Though there is no one-size-fits-all solution to farm succession, Dobbs said all farms should find an agriculturally knowledgeable attorney to handle it.

“Farming is unique because an operation and its land can, and many times should, be separated into two distinct businesses,” she explained. “Farmers have different vocabulary, and if the lawyer can’t understand a farmer’s balance sheet, then the communication barrier might prevent the right assets from being directed to the right beneficiaries.”

To find an ag law attorney, Dobbs said families may have to look outside their county. The Purdue University Extension Succession Planning Team can make good recommendations, she said, as well as INFB, or asking existing advisers and CPAs.

“Laws aren’t different for farms; it’s just getting someone who understands farming and knows the vocabulary and gets some of the softer issues about on-farm off-farm relations,” she said.

“A lot of the time it’s entity and trust planning that’s beyond the knowledge base of your local adviser. Ask for an initial consultation or a call, because it’s important to find someone you want to talk to and are willing to share your dirty laundry with.”