Edition #21

November 25, 2023

Good morning and welcome to the Braintrust Ag newsletter. Hoping this holiday weekend brings you as much joy as this pardoned turkey with his new lease on life:

A couple notes to begin:

• The people on X spoke and 37% thought a Black Friday sale for membership is too gimmicky…we agree. So, there’s no Black Friday, Small Biz Saturday, or Cyber Monday sales here:

• Our next SOIL Gathering will be on 11-30-23 with the topic: Value-Add Opportunities Part 2

• If you have any spreadsheets, calculators, checklists, guides, or other resources to share with the group, email [email protected] and I’ll get them posted.

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:

• 👴 Estate & Investment Plans

• 🔥 Risk Heat Map

• 🥊 Contested Will Saga

• 🚜 Machinery Transfer Strategies

• 🏦 6 Real Estate Loan ?’s To Ask

• and more…

WHOLE FARM PLANNING:

Estate & Investment Plans

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

• Retirement & Transition Planning

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

Estate Plan

Think of estate planning as the blueprint for how all the pieces of the farm—like the land, the barns, the animals, the crops, and all the gear—will be passed on when the inevitable occurs. Again, an estate plan is different from a transition plan, as it only comes into effect when the owners pass away.

It’s about making sure that everything you've worked so hard for goes where you want it to without a massive tax headache. That's why you want a lawyer and a tax expert who know the ropes of farm transitions to help you draw up the plans.

Insight for Farm Families:

• Get Expert Help: Team up with pros who know about farm estate laws to save you from tax troubles.

• Plan Ahead: Don't wait too long to get this sorted. It’s a big job, and you want it done right.

• Clear Instructions: Make sure your will or trust is crystal clear to avoid any family fall-outs when it's time to divvy up the farm.

Investment Plan

Investment planning for farm families isn't just about pouring cash into crops and cows. It's smart to look beyond the farm too—think stocks, bonds, real estate, or even a little nest egg for when you retire. These off-farm investments can be a safety net for things like college funds or your retirement beach house.

When you're picking investments, you’ve got to weigh up stuff like how much you're likely to earn back, how much risk you're willing to take, the tax side of things, and how long you've got to let that money grow.

Insight for Farm Families:

• Diversify: Don't put all your eggs in one basket. A mix of farm and off-farm investments can keep you steady.

• Risk vs. Return: Be honest about how much risk you can handle versus how much you hope to make.

• Long-Term Thinking: The best investments are the ones that match up with your future plans—whether that's college for the kids or a comfy retirement.

Estate and investment plans are critical pieces of the bigger picture that include retirement, transition, and business plans. While estate planning ensures the farm’s assets are passed on smoothly and tax-efficiently, investment planning builds a financial cushion that supports the farm’s and family’s future needs.

Together, these five plans interlock to safeguard the farm’s legacy, provide for the family's present and future, and secure the operation's ongoing success. They are the strategic threads that, when woven together, create a strong safety net for both the current and upcoming generations of the farm family.

RISK MANAGEMENT

Become a member today for lifetime access to everything.

CONTESTED WILL: A Real Life Lesson

The Tangled Legacy of Russell Tank: A Family Farm Dispute

In a recent legal saga born from the rural community of Britton, South Dakota, the last will and testament of the late Russell Tank has been the subject of intense scrutiny and legal challenge and involves a $3.5 million estate and $150,000 of buried cash.

The will, which seemingly favored neighbor and farm tenant Bender over Tank's own offspring, sparked a lawsuit from Russell’s four children, who raised questions about their father's mental capacity and susceptibility to undue influence at the time of the will’s creation.

Russell Tank, a seasoned farmer who returned from military service in the 1950s, spent his life cultivating his estate in Waverly Township. After a divorce in 1974, his four children faced a strained relationship with their father, who largely focused on his passion for vintage vehicles and his dog, Whitey.

The will in question, which named Bender as the estate’s sole heir and personal representative, came under fire as Russell's daughter Sherri contested its validity. She won a jury verdict on the claim that Bender unduly influenced the creation of the will. However, the circuit court later set aside this verdict, prompting an appeal which the higher court reversed, allowing Sherri’s claim to proceed.

Throughout his life, Russell's relationships with his children were complicated. After the divorce, the children tried to maintain ties with their father, but these efforts were often met with coldness and disinterest. The farm's operation and Russell’s relationships grew increasingly isolated, especially after he inexplicably turned sons Arlo and then Renny away from the farm in the mid-1980s and early 2000s, respectively.

Russell executed three wills over a decade, with the latter two favoring Bender, who had grown increasingly close to Russell, even leasing his land at 25% of fair market value. Witnesses observed Bender's deepening influence over Russell and noted his control over access to the aging farmer.

The dispute culminated after Russell's death in 2016 when Bender produced the last will, which completely disinherited Russell’s children. The ensuing court battle highlighted concerns over Russell's mental state in his later years and Bender’s role in his affairs, including a suspicious codicil to the will in Bender's handwriting.

The court found undue influence on Bender’s part, resulting in a win for the daughter. Part of the court’s reasoning was a combination of the low rental rates, a map Bender kept secret showing where all the cash was buried, adding his name to Russell’s bank accounts, Russell opening large investment accounts with Bender’s wife, and the control Bender portrayed over folks having access to speak with Russell.

In the end, the court’s decision to side with Russell’s daughter underscores the importance of vigilance and fairness in matters of inheritance, especially in cases where the mental capacity and independence of a testator are in question.

Read the full South Dakota Supreme Court opinion here: In The Matter Of The Estate Of Russell O. Tank

FINANCE

6 Questions To Ask Your Ag Lender When Getting A Real Estate Loan

1. How long is the interest rate good for? If you expect rates will move higher, it may be best for the rate to be locked in for the life of the loan. Rates are currently well off their historic lows of 2020, but will they be higher when your interest rate reprices?

2. What fees are in place if you want to restructure? If interest rates go lower, will you be allowed to save that money? Ask questions to make sure there aren’t repricing fees a few years down the road. Flexibility is valuable in helping you optimize your financials and reduce risk.

3. Is there a prepayment penalty? If you have profitable years, can you make extra payments toward the principal balance? Will you be able to get out of the loan if you decide to swap ground for a different property that works better for your operation?

4. Is the payment date set up to allow you to take advantage of seasonal cash flow? Do you want that payment to overlap with when cash rent and taxes due? Give yourself time to have the crops delivered and sold. You don’t want loan payment due dates to dictate your marketing strategy.

5. How many years is the note set up for? Can you realistically afford payments if commodity prices drop 25%? Have you added the payments to a projected cash flow? Weigh lower payments/longer note vs. higher payments/shorter note.

6. Should you make a larger down payment or finance a larger portion of the purchase? There is a correct answer based on your current financial position and goals for your operation.

Thanks to Grant Wiese, an ag lender with FCS, for putting these questions together. Check out his other insights at https://farm640.com/

ESP SPOTLIGHT

Endorsed Service Providers are pivotal to the Braintrust Ag community. These industry experts know their professional services niche and how they directly impact farmers, ranchers, and other ag business owners.

This week, I’d like to direct your attention to yours truly, ESP Clint Fischer with Ribstein & Hogan Law Firm

If you’d like to learn more about the ESP program, click here.

FARM MACHINERY TRANSFER STRATEGIES

Farmers have many options to transfer farm machinery, and must carefully consider their options, as each method impacts financial stability and tax obligations. The right strategy can help retiring farmers secure their finances and enable new farmers to enter the business with manageable costs. A well-informed choice in this transition is essential for the longevity and sustainability of ag operations.

Here’s the options:

1. Outright Sale

• Financial considerations: Buyer pays the full price, which may require significant cash or a loan. Sellers receive immediate payment to use or invest as they desire.

• Income tax considerations: Sellers may face high tax burdens due to recaptured depreciation and capital gains, while buyers can begin depreciating the machinery.

2. Installment Sale (total purchase in even payments)

• Financial considerations: Eases cash flow by spreading payments, with potentially more favorable terms than commercial loans.

• Income tax considerations: Buyers face the same tax consequences as outright purchase, sellers report recaptured depreciation immediately but spread capital gains across payments.

3. Gradual Sale (specific items sold each year in their entirety)

• Financial considerations: Spreads out cash flow requirements and allows for yearly adjustments based on buyer’s financial status.

• Income tax considerations: Spreads tax consequences over several years, allows for expense method depreciation annually.

4. Lease Agreement

• Financial considerations: Good for when the owner has left the business; lease payments cover fixed costs and decrease as machinery ages.

• Income tax considerations: Lease payments are taxable income for the owner and deductible expenses for the renter.

5. Lease with Option to Buy

• Financial considerations: Lowers initial cash flow requirements, allowing the buyer to save for a future purchase.

• Income tax considerations: Lease payments are taxed as regular income; if the option to buy is exercised, the tax consequences are similar to an outright sale.

6. Gifting

• Financial considerations: The recipient receives machinery without cost, but the giver does not receive payment, which may impact their financial situation.

• Income tax considerations: The recipient’s tax basis is the giver’s adjusted basis, potentially leading to lower depreciation deductions.

7. Combination Sale and Gift

• Financial considerations: Reduces buyer’s cash flow requirements while also reducing seller’s immediate cash income.

• Income tax considerations: Lowers recaptured depreciation for the seller and reduces the initial tax basis for the buyer.

8. Gradual Gift and Sale

• Financial considerations: Spreads the purchase cost and reduces annual payment size.

• Income tax considerations: Reduces recaptured depreciation for the seller and the buyer’s initial basis for depreciation.

Each of these strategies must take into account the valuation of machinery at the time of transfer, and potential implications for both parties, such as the need for appraisals, tax consequences, and adjustments in ownership costs. Always consult your tax advisor before identifying the right option for your transition.

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.