Choosing an advisor … a tough decision? Or an easy decision? The vast majority of farm estate plans that I see are the result of many different advisors providing input on an estate or financial plan over a course of time. There’s usually an attorney involved at some point to prepare the legal documents. Then there may be handful of financial advisors that sold some products along the way. Some hire an advisor to analyze the profitability of the farm operation from a budgeting/cash flow or income tax perspective. Then of course, there is the tax preparer crunching the numbers.
We’ve also noticed that it’s not unusual for multiple generations of the same family to work with the same attorney or office over the years. A comfort level has been reached and the assumption is that “the attorney is a good guy”, and they would make decisions that are in the family’s best interest. While I wish that were always true, there are times when estate and farm continuation planning are not the strengths of that particular attorney. (Even though they are a good guy!)
Here are some questions to ask yourself.
- Does the attorney regularly work with farm estates and farm continuation plans?
- Have actual numbers been applied to the eventual costs of any rental and buyout conditions as a result of the plan?
- Do the resulting costs cash flow on a per acre basis?
- Does the attorney understand agricultural issues?
- Does the attorney have the same suggestions as the basic wills that are prepared for everyone else? Or is your plan customized for your specific farm and family situation?
- Are your plans clearly explained and understood?
- Did some things go over your head and you simply agreed because you were too confused to ask good questions?
- Did the attorney prepare the plan from your point of view? Or from their point of view?
How you respond to these questions may indicate if you have hired the right attorney or if it may be wise to find someone who specializes in what you need. Remember that nice does not always mean qualified.
Let’s not just pick on one profession! What about financial planners?
The financial industry has its share of people who are not qualified to provide estate and farm continuation advice as well. We often see plans that involve an insurance sale that focus on the need for cash availability to pay an estate tax. Yet they walk right past any buyout or equalization needs between the farming and non-farming heirs. Or they have the product, but no real plan to put it together. While clients may benefit from having a financial products sold to them, it is unfortunate that many sales take place without real planning. Don’t let insurance products just be a quick sale or based on some emotion. Maybe the insurance was sold to the
farming child and now looking back the amount is inadequate at today’s prices because no
planning was coordinated with the original insurance sale.
What does your financial advisor specialize in?
If that individual or company is ready to give you an application for any kind of insurance you may ever need, all the way from health, to auto, to life, to property, to hail insurance, it would be fair to assume that there is no way any one individual can possibly be an expert in all of those areas. And yet, there are people in those positions who sell a significant number of products without specializing in placing them, servicing them, or coordinating them to solve the real problem. They may be excellent salespeople, but that may not be what you need.
Another issue is the agricultural background of your farm transition advisor.
I think most would agree that unless someone has actually farmed, or grew up and was very active on the home farm, it is difficult to understand the daily issues involved in agriculture. One issue that has continually intrigued and confused me has been when an existing attorney or financial advisor has done a particularly poor job of planning or sold a very inferior product. Some people react much like I would and would probably discontinue that relationship regardless of how long it’s been. Based on what they did previously, they probably would not be competent enough to handle the situation going forward. The confusing part to me is when after identifying the clear issues that were either overlooked or improperly handled, that people go back to that same person. To me that is amazing. I would think that the advisor either did not have the proper knowledge to give solid advice, or they knowingly put their own interests in front of yours. Either way, I would question the logic of going back to that individual.
So then, who do you hire?
The answer can be kind of tricky. Doing nothing, or paying nothing, may end up being a very expensive decision. However, paying a lot for an advisor doesn’t mean you get what you pay for.
I was once working with an individual who quite proudly announced to me that their whole plan was put together by someone who never tried to sell them anything. They actually had a decent plan. The options were laid out, but there was no money to fund the buyouts because their plan did not include any financial products. Ironically, a few years later when that gentleman’s parents passed away, he commented that one mistake they had made was not having life insurance in place. The planner who worked with them was so set on not recommending financial tools, that he had completely overlooked the value of insurance being a part of the plan.
It is critical to understand the financial products. There are some very significant situations where select financial tools should be used, and some where they should not. Unless someone involved in your planning clearly understands the advantages and disadvantages of different types of financial products, you may be missing a key part of the solution to your problem.
A short time later I worked with a family that had previously committed to working with a planner that charged them a crazy amount of money. I could not believe how much they had paid. There were nice thick binders full of papers that looked very official. I expected to see a lot of substance, but the plan was all fluff. After going through it they were frustrated and upset.
A well thought out estate and farm continuation plan should fit together like a hand in a glove. Every part of the plan should be coordinated to accomplish the goals and make sense under a variety of circumstances. If that is not the case, then perhaps one of your advisors is not qualified to handle your planning.