Minnesota Wheat Growers VP Succession-Retirement Planning Farm Transition and Business Planning A few things to consider as you start this journey Minnesota Wheat Growers September 11th , 2019 Russ Tweiten, CTFA, CRPC VP Succession-Retirement Planning

What We Do…  Estate Planning  Farm & Ranch Succession & Retirement Planning  Entity Planning  Family Meetings Meeting Facilitation Information Sharing

What are we talking about today? This is a journey. Effective plans cannot be made in your microwave!! Business or Asset Transfer? Having a written plan Being clear about your plans Be willing to make adjustments Communicating your plan

Business Transfer or Asset Transfer? Is the goal to transfer your farm or ranch as an ongoing business to a successor(s) or as a group of assets to heirs? Business transfer requires an estate plan, a retirement plan and a transition plan Asset transfer requires an estate plan and a retirement plan

Harsh Realities If its not in writing it does not exist! For example: You trade labor for reduced land rent or use of machinery. Or, you don’t charge fair market rents for land. Machinery/Bin site transfer plan is not in writing No one appointed to manage your assets or make medical decisions if you are disabled Your estate plan and transition plan conflict

What Usually Does Not Work Last minute “Plans”— “My kids will work it out – they get along” (i.e. doing nothing) Purchasing land from siblings when you’re 60+ High Debt & High Family Living and a desire to exit or retire Wanting to feed too many mouths If farming via an entity (Corp, LLC or Partnership)--not understanding how the entity works into the transition plan Poor Communication within the family Nothing or very little written down- try to avoid handshakes and promises made in the shop. Is the shop your Las Vegas?! Last minute changes to the estate plan

Business Transfer or Asset Transfer Business Transfer or Asset Transfer? Both are Journey’s—not a 2 hour meeting! Business Transfer Transition to the next generation Communication is vital What are the goals for each person Financial Viability Succession Plan Tax Control Plan Retirement Plan Estate Plan 5 to 10 years Asset Transfer No Transition to the next generation Tax Control Plan Retirement Plan Estate Plan Communication Time frame hinges on the process used to transfer assets- is asset protection a priority? 3 to 5 years

Business Transfer Goals They may be different! Older Generation Farmers Younger Generation Farmers Successful transition-how is this defined? Income security Identity and sense of purpose Farming and non-farming heirs, “equal or fair”? Access to Medical Care Successful transition-how is this defined? What does the will say? Do I have to buy out my siblings or share assets with them? Decision making transfer? Growth & Attitude toward Debt How long will I have to rent assets? Work-family balance

Business Transfer—Financial Viability How many families can the farm support? What is the senior farmer’s debt? What are the family living figures for senior and younger generation? Is an off farm job necessary? How much owned vs. rented land? Will the younger generation need to buy non-family land that is being rented? If this is a “strong maybe” or an “I’m pretty sure” what does the parents wills say about family land at their death?

Business Transfer—Succession Plan Are the parents ready for a business partner? What is the plan to transfer management Is the next generation involved in all aspects of management? What is the plan to transfer assets? Sell Gift Rent Lease Have you written down the transition plan and are all family members aware of the process?

Business Transfer—Retirement Plan How do you define “Retirement” in a transition plan? When will management transfer? Cash Flow! What are the sources of retirement income? What are family living costs and debt? Has a tax planning strategy been discussed? Where does your farming child’s spouse fit in? How informed are non-farming children about the transition process? Are you ready for this change?

Business Transfer—Estate Plan Fair or Equal—difficult to achieve both! Does your estate plan facilitate transition or disrupt transition? If a farmer has to buy assets out of the estate, can the farm support a buy-out? Have you “tested” your estate plan—run your balance sheet through your will or trust using today’s values and debt and see if the estate plan still meets your goals. Have you talked to your family about your estate plan?

Asset Transfer (no transition) Tax Control When you retire from farming or ranching how will you control taxes? Ideas: Give yourself some time--3 to 5 years if possible Defer grain sales What about debt—will retirement cash flow with your level of debt? May need to consider retirement plans such as pensions and 401(k)’s or, a Charitable Trusts for grain and machinery

Asset Transfer—Retirement Plan Its all about cash flow. What are the sources of retirement income? Land Rent (no S/E tax) Land Sales: After taxes are paid will net proceeds from the sale now generate the same level of income as cash rent or, if land is sold to pay off debt is enough interest saved to justify the taxes? Social Security (at age 66+ most can start with no reduction in benefits) Machinery Auction (tax control is the challenge) Investments and Retirement Accounts

In both Business and Asset transfer: Be Open to Change When should I make changes or a least review my plans: If tax laws change Farm economy changes Health changes A change in family dynamics (marital status, family stability, health issues within the family) If there is a “change of heart” with transition Review your plan each year for the first 3 to 5 years for transition—every 5 to 10 if no transition.

Is Asset Protection a Concern? Yes—protection from…? Nursing Home Marital Challenges with children Second Marriage Health Concerns Disabled Family Member Tools and Solutions Insure, Sell, Gift, Self-Pay Trusts, parents retain assets, pre-nup or post-nup Pre-nup, QTIP Trust in Wills Health Care Directive, Trust, Guardianship or Conservator Special Needs Trust, disinherit?

Communication Open and ongoing communication is vital. For a successful and positive outcome, Communication is the single biggest factor in any Business Transfer or Asset Transfer Plan.

What Can You Do? Please talk to each other! Make sure your plan is reviewed—be open to change Make sure your plan is COMMUNICATED Have an open dialogue with your family – both farming, and non-farming children Please talk to each other!

Thank you for Attending! Russ Tweiten, CTFA, CRPC VP Succession-Retirement Planning 1900 44th Street South, Fargo, ND 58103 (701) 429-7307 Russell.Tweiten@Agcountry.com