Three Retirement Fundamentals for Farmers and Ranchers

Like the rest of our nation, America’s farmers and ranchers are graying. The average age of farmers and ranchers is now almost 60 and retirement is becoming a major issue in the farming and ranching communities. Some farmers and ranchers look forward to retirement – others put off thoughts about the time when they will no longer actively farm or ranch. 

Planning – any kind of planning – means building a bridge between the present and the future. Planning involves what you want your future to look like and deciding what needs to be done to realize your vision.

Retirement planning for farmers and ranchers is complicated because there is a business (the farm or ranch) to consider. Retiring farmers and ranchers need to consider where and how they want to live and make plans for transferring the farm or ranch to family or to a third party. These decisions require careful thought and discussion by all members of the family.  Unfortunately, these decisions won’t simply “go away.”    

Fundamental # 1 – Recognize That Estate Planning Is A “Must”

It is estimated that nearly 60% of farmers and ranchers do not have an up-to-date estate plan. Even more concerning is that nearly 90% of farmers and ranchers do not have a transition plan.  Farm Journal Legacy Project, University of Minnesota Survey 2008. 

Estate planning is simply a “must.” Solid estate planning for a farmer or rancher should focus on (1) ensuring that your assets will provide you with sufficient income to live during retirement; (2) ensuring that upon your death, your assets go to the beneficiaries you intend; and (3) minimizing your estate tax, fees, and court costs. Estate planning is an ongoing process. However, taking the time to make sure that your estate planning is up-to-date is essential as you get closer to retirement.  

Fundamental # 2 - Understand How Your Property Is Owned

Farm and ranch property can be held in several ways. However, farmers and ranchers usually own their property in one of four ways. 

Sole Ownership

Sole ownership is the simplest form of ownership. Upon death, the property passes via your estate plan. If you have no estate plan, state law dictates how your property is transferred. 

Tenancy in Common

A tenancy in common allows two or more people to own property together. Upon the death of any owner, the decedent’s portion of the property does not go to the survivor. Rather, the property passes under the terms of your estate plan. 

Joint Tenancy 

A joint tenancy is ownership between two or more people. They own the property together and upon the death of one joint tenant, the surviving joint tenant (or tenants) receive the decedent’s property automatically regardless of what the decedent’s estate plan states. To create a joint tenancy, specific wording should be used on the ownership documents.

Typical wording is “John Smith and Mary Smith, as joint tenants with rights of survivorship, not as tenants in common.”

Life Estate 

A life estate occurs when a living person transfers an asset to another person while at the same time retaining a life estate or lifetime use of the property until their death.

Fundamental # 3 – Create A Power Of Attorney

There may come a time when you can no longer manage your health care and financial affairs. A power of attorney is a legal document in which you grant to another person (known as the attorney-in-fact or agent) the legal authority to take certain actions on your behalf. A health care power of attorney allows you to designate another person to make medical treatment decisions for you. A financial power of attorney allows you to designate the same or another person to act on your behalf regarding financial and legal matters.

Regardless of how you choose to plan for retirement, keep in mind that these three fundamentals involve some of the most important family, business, legal, and tax decisions you will ever make. Planning can be time-consuming, but neglecting to plan can cost your family much more than creating a plan.

Brooke Swier Schloss
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Family Law and Estate Planning attorney helping families across South Dakota plan and protect their loved ones