Living her advice

In 2019, Johnston, her husband and their daughter, Jordee, took advantage of an invitation to join her parents at Mike Sitz Angus Ranch. The registered Angus cow herd was established 101 years ago by founder Will Sitz (Mike’s grandfather). Will’s son, Bill, continued the breeding program until selling the herd to Mike and Debra.

All of today’s females, including Johnston’s own cows, trace back to the seven cow lines that made up Grandpa Will’s foundation herd. It’s a legacy the Johnstons feel privileged to continue.

But doing so required a plan, including setting up separate business entities for ownership of land and the “operation.” The operation pays rent to the land-owning entity, which assures future income for Mike and Debra Sitz. The plan allows for a transition of control over management decisions, with the Johnstons assuming greater responsibility over time, while the parents serve as mentors.

Advisory team

There’s more to the plan than that, of course, and that’s why the Johnston-Sitz family sought help from an advisory team. Johnston strongly urges other producers to recruit a trusted team of professionals, including a planning coordinator; an accountant; a financial advisor; an insurance agent; and, of course, an attorney.

According to Johnston, a planning coordinator can be particularly useful to families who don’t know how to begin the transition-planning process. This advisor can facilitate communication among family members and other professional advisors, prompting the “what if” questions and helping avoid decisions with unintended consequences.

In full agreement with the advisory team concept and the important role of a planning coordinator is Ashlee Westerhold, director of the Office of Farm & Ranch Transition at Kansas State University. She likens this team member to a “quarterback” for the planning process.

“A coordinator that’s well-versed in succession planning can help with goal setting, which is critical, and also help guide family members through uncomfortable but important conversations. The coordinator helps keep things moving forward and serves as an accountability coach,” says Westerhold, noting that her office and extension personnel in other states offer this service. On its website (https://www.farmtransition.org/), IFTN also lists names and contact information for certified planning coordinators in various states.

Accountant

Every advisory team should include a certified public accountant, according to Westerhold. An accountant can aid families in choosing business structures suited to particular situations. He or she can explain the advantages and disadvantages of creating different business entities for asset ownership, such as a partnership, limited liability company or different types of corporations.

They can explain options for transferring ownership of property, including the do’s and don’ts of gifting assets, she adds. Perhaps most importantly, an accountant should be able explain the federal and state tax implications. Familiarity with the tax rules and regulations, as they apply to agricultural operations, is essential.

“If you don’t already have an accountant, I strongly advise producers to find one to help with transition planning. A trustworthy accountant is a pillar in this process,” Westerhold adds.

Financial planner

Another important member of the advisory team is a financial planner who can help assess an operation’s ability to bring an additional person or family into the business. It’s important to know if the operation can pay for insurance needs of multiple households. What about retirement or long-term care for senior members of the family?

Is there potential for further expansion of the operation? Is there potential for building wealth in ways other than ownership of land and livestock? The latter question can be important when planning to divide an estate among on-farm and off-farm heirs without jeopardizing an operation’s economic viability.

Insurance agent

Westerhold says an insurance agent can help determine costs associated with medical and life insurance for families involved in the operation. Perhaps long-term care insurance should be considered. Planners need to know the costs and figure out if the operation, as it is structured, can shoulder that expense.

Attorney

Certainly no plan for estate disposition can be made without appropriate legal documents. Both Johnston and Westerhold recommend employing an attorney familiar with both state and federal estate and tax laws. An attorney can help families choose the legal tools best suited to achieving their goals, including the aforementioned business organization entities, and prepare necessary documents such as a will, trust, durable power of attorney and healthcare power of attorney.

“Producers need to use the right kind of attorney,” insists Westerhold. “The right attorney has the expertise to implement tools for protecting assets and transitioning management of an operation while the patriarch is still alive.”

Interview potentials

Attorney, estate planner and Harrisburg, Neb., rancher Pamela Epp Olsen echoes the call for qualified advisors. She advises producers to use discernment when building a team.

“You should expect professional expertise and confidentiality, but choose people that you’re comfortable talking to — people that will listen to you. Make sure you can understand when they talk to you,” states Olsen, recommending that producers interview prospective advisors and ask for references.

“Be sure to ask prospective advisors what it will cost to have them help you. Even an attorney should be able to tell you. If they can’t or won’t, walk away. Find somebody else that is a good fit,” says Olsen, noting how building an advisory team may be the most important part of estate and generational transition planning. She urges producers to identify their own team members and start planning.