Edition #20

November 18, 2023

Good morning and welcome to the Braintrust Ag newsletter. Where we give you something to read & ponder while you’re hiding from your family like this gent…

A couple notes to begin:

• Our first ever Expert Q&A (planning to do this monthly) was a smashing success. If you were unable to attend, here’s the recording: Expert Q&A: Farm Succession & Transition.

• Apparently it’s Thanksgiving next Thursday, so we will postpone our next SOIL Gathering until 11-30-23.

  • Because of so much positive feedback on our last SOIL Gathering, our topic will be: Value-Add Opportunities Part 2

• Pretty cool that I can share this membership number with all of you:

(very thankful for all 123 of you and excited for that number to grow… just click here to make that happen.)

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 🤝 Retirement & Transition Plans

• 🌱 Seeds

• 📈 Cost of Production #s

• 💍 Prenups

• 💲 Year End Tax Tips

• and more…

WHOLE FARM PLANNING:

Retirement & Transition Planning

Getting your planning game on point is important for farm life. It's all about staying ahead of the game, tackling those one-of-a-kind farm challenges head-on, and setting up the farm for a win not just today, but way down the road too. That’s why we’re taking the Whole Farm Planning approach, step by step.

Previously, we discussed

• The approach

• The farm family

• Individual & business assessments

• Mission Statement & Business Plan

This week, let’s take a look at developing your farm’s Retirement Plan & Transition Plan:

Retirement Plan

When it comes to hanging up the work boots and settling into retirement, farm families need a solid game plan.

The big question is: How dollars will each family member need to enjoy their golden years, and what slice of that is the farm chipping in? It's not just about picking a retirement age; you've got to think about where you’ll live and other savings you've got stashed away.

Here's the gist: start planning early. The sooner, the better, because you want to make sure when someone's ready to retire, it doesn’t put the farm's finances in a tight spot. The farm (by itself) needs to be profitable enough so that when someone steps back, it doesn’t cause a financial hiccup to that successor generation.

So, it’s prudent to sit down and map out out what that retiring generation needs to live on (a retiring generation household budget) and identify the sources of that income. If a large percentage of that is from the current farm, families need to identify how to maintain that stream of income while also keeping the farming operation financially viable.

Insight for Farm Families:

• Start Early: The earlier you plan, the more options you'll have for a comfortable retirement.

• Realistic Needs: Get real about how much you'll need—factor in living costs, healthcare, additional insurance costs, and a little extra for the fun stuff.

• Farm's Health: Ensure the farm can stand strong financially, even when a family member retires.

Transition Plan

Transition planning is all about making sure the farm keeps on thriving when it's time for the next generation to take the reins. It’s more than just handing over the keys; it's about passing on the know-how and managerial savvy. The family needs to sit down, look at what they've got now, dream up what the future looks like, and map out how to get there. This means deciding when the up-and-comers get to make big purchases or start running the daily financial show.

Here’s what you need to chew on: It's crucial to share your wisdom with that next generation early and often. And don't forget about those family members who might not be farming. You've got to figure out how to treat them fairly in the handover without putting the farm's future in jeopardy.

Insight for Farm Families:

• Knowledge Transfer: Share your farming smarts—mentorship is key.

• Timed Handover: Set clear timelines for when the next generation steps up to major tasks and managerial expectations.

• Fairness: Balance the transition so it's fair to everyone involved, even those off the farm, but still keeps the farm's future secure.

By getting a grip on both retirement and transition plans, farm families can pave the way for a smooth shift from one generation to the next, ensuring the legacy and the livelihood keep going strong.

That’s often a big task… with multiple generations’ ideas, farm and personal financial situations, and family relational dynamics, it means months and years of work. Sometimes, it’s best to bring in a neutral third party to hep advise on how best to make that handoff. Don’t be afraid to reach out to your trusted advisors or other members of Braintrust Ag for support.

Each part of your plan should be helping the others out. It's a team effort, and when done right, it'll keep your farm rolling smooth for the long haul.

Next week, we’ll dive into the last two of the five essential plans: a farm’s estate plan and investment plan.

SEEDS

• 🤝 Transition Workshops: There’s a couple of farm transition workshops coming up, one put on by UNL and the other by Mike Downey. Braintrust Ag is not affiliated with either of these, but still encourage folks to check them out!

• 🏖️ Retirement Planning: This article poses a couple questions to some experienced advisors regarding retirement. These scenarios are typical for many areas and many farmers reaching retirement age.

• 🦌 Deer Processing: There’s a farm in Pennsylvania that will process 4,000+ deer this year. They started with hogs, then cattle, added deer, and now process cheese as well. It’s allowed them to keep the farm and bring the next generation into the family business.

• 📈 Plan For Next Year: Here’s nine tips for strengthening your farm business for the upcoming year.

• 🤖 Autonomous Weeders: A robotics company just raised $12 million in investments to scale its solar powered, autonomous robots used to weed crops. Aigen Robotics hopes to get 20,000 acres covered in 2024.

USDA Cost of Production

Twice a year the USDA estimates what the national average cost of production of major field crops will be.

Here's the October numbers:

And here’s the detailed summary:

Here’s the link to all the USDA Cost of Production and Returns reports for various crops, livestock, and regions.

PREMARITAL AGREEMENTS

Note: I’ve had a few folks ask about these and I’m presenting the topic from an objective, business first standpoint. Personally, I’m of the opinion that reducing a loving marriage relationship down to a contractual agreement may be part of why so many marriages end in divorce. Prenups may be a useful tool, but to me there’s a larger factor at play when folks are contemplating marriage. It ought to be a question of love, commitment, and relational obligations above written contracts.

My opinions out of the way, here’s how prenuptial agreements may be utilized in a farm family business:

Prenuptial agreements, often misunderstood, may be valuable documents for those in farm and agricultural businesses. They function much like an insurance policy; as a preparedness plan for the financial health of both the marriage and the farm business.

The Stakes: Why Prenups Matter in Agriculture

Farms typically involve high-value assets like land, machinery, and livestock. A divorce or the death of a partner without a prenuptial agreement can lead to a complex and painful division of these assets, potentially destabilizing an operation that may have been in the family for generations.

These agreements are not just for the wealthy, they enable any couple to establish their own rules for handling property and financial matters, should the marriage dissolve.

Legal Considerations: A prenuptial agreement must be fair, entered into voluntarily, with both parties having separate legal counsel, and executed correctly according to state laws to be enforceable.

Crafting the Agreement

• Assets and Debts Before Marriage: Assets and debts acquired before marriage are generally deemed separate property, but a prenup can detail how these and future earnings are managed, providing clarity and reducing future conflicts.

• Managing Business Interests: With the potential for significant appreciation of business value over time, prenups can protect pre-marital business interests and define the financial involvement of each spouse in the business.

• Income and Investments: A prenup should outline how the couple will treat income and investments, including retirement accounts, during the marriage—whether they will be regarded as joint or separate assets.

• Real Estate and Inheritance: Couples can agree on how to handle future real estate purchases and how to attribute value to individual contributions. Gifts and inheritances received during the marriage can also be specified as separate property.

• Division of Marital Property: Prenups can set forth clear guidelines for dividing property, including sophisticated mechanisms like business valuations and vesting schedules for family farm businesses, tailored to the length of the marriage.

• Provisions for Spousal Support and Estate Rights: These clauses can stipulate how spousal support is managed post-separation and ensure that estate rights are handled in line with the couple’s wishes, not just the default state law.

The Creation Process

• Full Disclosure and Legal Representation: Full financial disclosure is mandatory, and independent legal advice is critical to ensure that the agreement is equitable and comprehensible.

• Documentation and Formalities: Tax returns, balance sheets, and other financial documents should be attached to the prenup. Requirements such as witness signatures vary by state and must be adhered to.

• Enforcing the Agreement: Enforcement hinges on proper execution and the absence of fraud or duress. Prenups signed imminently before a wedding are scrutinized more heavily by courts.

• Consultation and Understanding: Templates for prenups are a starting point but consulting a lawyer is essential. Both parties must fully understand and agree to the terms before signing.

Conclusion

Prenuptial agreements may be a proactive step towards financial clarity and business continuity for farm families. They can ensure that the business remains viable and is passed down as intended, regardless of personal relationship outcomes.

POLL: Strategic Partnerships

Something else? Reply to this email with your thoughts on who we should try & partner with.

YEAR END TAX PLANNING

As the year wraps up, farmers must take a keen look at their financials for savvy tax planning. Here's a condensed guide to positioning your farm for tax efficiency as we approach year-end.

Know Your Numbers

Kick things off by analyzing your financial statements. Understanding where you stand financially is your first step towards effective tax planning.

Team Up with a Tax Pro

Tax intricacies in agriculture are complex. Collaborate with a tax advisor who's well-versed in farm-specific tax laws to capitalize on credits and deductions.

Capitalize on Capital Expenditures

The tax code is your friend when it comes to certain capital investments. Purchasing necessary equipment before year-end can lead to immediate tax relief. But, don’t let the tax tail wag the farm business dog. Ensure these investments make business sense, not just tax sense.

Smart Depreciation Decisions

Evaluate which farm assets could be depreciated to even out your income and lower your tax hits over the coming years.

Inventory Insights

Your stock of crops and livestock can be a tax gamechanger. Adjusting inventory values can influence your reported earnings and tax obligations.

Maximize Credits and Deductions

Don't leave money on the table. Look into every tax credit and deduction you're entitled to as a farmer.

Time It Right

The timing of income and expenses can sway your tax liabilities. Sometimes, pushing income into the next year or pulling expenses into the current year can be beneficial.

Business Structure Scrutiny

Your farm's legal setup affects your taxes. Is there a more advantageous structure for you? It's worth a discussion with your tax expert.

Retirement Ready

Invest in retirement plans tailored for farmers. These can provide immediate tax deductions and secure your future simultaneously.

Stay Alert

Tax laws evolve, and keeping up ensures you're not caught off guard. Regular check-ins with your tax advisor will keep you informed and prepared.

In essence, proactive tax planning is indispensable for your farm's financial health. Taking strategic steps now can lead to a more prosperous and tax-efficient future for future endeavors.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.