How to Be Proactive with a Succession Plan
Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” This wisdom holds especially true for farmers, whose livelihoods and family legacies depend on careful planning. The story of the Peterson family in Gilbert, Iowa, serves as a powerful example of how proactive succession planning can ensure the continuation of a farm for generations to come.
Laying the Groundwork: Starting the Conversation
In 2014, Kevin Peterson and his son, Erik, attended a farm continuation workshop led by Mark McLaughlin, an expert in estate planning and farm succession. Kevin, a farmer and firefighter, knew that securing the future of his family’s 300-acre farm required meticulous planning. He sought guidance from professionals, including McLaughlin, to craft a comprehensive strategy.
The First Steps: Protecting the Land
The initial focus of the plan was on Kevin’s mother, the landowner, who wanted to keep the farm intact for future generations. The family structured a contract sale that allowed Kevin to purchase the land from his mother over a 20-year period. To ease the financial burden, part of Kevin’s inheritance was used to lower the purchase price. Despite some initial resistance from Kevin’s siblings, his mother stood firm in her decision to maintain the land as one unit.
Ensuring Stability: Estate Planning and Contingency Measures
Kevin and his wife, Lynn, took additional steps to safeguard the farm’s future. They set up rental and purchase agreements between Erik and his sister, Lindsay, ensuring a fair but practical distribution of assets. Life insurance policies provided financial security, allowing the farm to continue operating without disruption in the event of Kevin’s passing.
A Sudden Loss: Putting the Plan to the Test
Tragically, within a few years of finalizing the estate plan, Kevin passed away in a motorcycle accident. However, because of the careful planning, his family was able to move forward without financial turmoil. Lynn redirected the $1 million life insurance benefit to Erik, enabling him to purchase his father’s machinery. The tax-free nature of the insurance proceeds, combined with smart financial planning, allowed Erik to reinvest in the farm while simplifying Lynn’s financial responsibilities.
Moving Forward: A Lasting Legacy
Today, Lynn continues to pay off the farmland, ensuring it remains within the family. Erik is set to fully own the Peterson farm one day, with Lindsay receiving a fair inheritance in nonfarm assets. The family’s story underscores an essential truth: fair is not always equal, and strategic planning is key to preserving a farm’s legacy.
Final Thoughts: Why Every Farm Needs a Succession Plan
The Petersons’ experience highlights the importance of early and proactive estate planning. Without it, the sudden loss of a key family member can lead to financial instability, legal battles, and even the loss of farmland. As Erik advises other farm families, “Make time and put it in your calendar. Make sure you just get it squared away.”
By taking the necessary steps today, farmers can secure their family’s future and ensure that their hard work and legacy live on for generations to come.
To read the full article by Lisa Foust Prater, please visit How to Be Proactive With a Succession Plan.
