Attorney explains pitfalls of farm succession planning

SALEM — As Oregon farmers and ranchers get older, the need for estate planning is growing more urgent to ensure working lands remain in operation.

Maria Schmidlkofer, an Oregon attorney with 13 years of experience with farm succession plans, knows the pitfalls all too well.

Family dynamics, disability or lack of foresight can all complicate the passing of farmland from one generation to the next, Schmidlkofer said during her educational seminar Wednesday at the 50th annual Northwest Ag Show in Salem.

According to a 2016 study by Oregon State University, Portland State University and Rogue Farm Corps, farm operators over the age of 55 now control 64% of the state’s agricultural lands. That means roughly 10 million acres are likely to change ownership over the next two decades.

It is up to lawyers like Schmidlkofer, with the firm Schwabe, Williamson & Wyatt in Salem, to help that transition happen smoothly with well thought out succession plans.

“If you have a farm in this room, chances are you need a living trust,” Schmidlkofer said. “It’s just so much easier for tax planning, for transitioning (farms) to the next generation. I think it’s just a far superior way of doing that.”

As part of her presentation, Schmidlkofer explained the difference between wills and trusts, and outlined the process of establishing a limited liability corporation — or LLC — to incorporate multiple generations in the farm who may one day take over the business.

Most estate plans also address things like mental or physical disabilities, Schmidlkofer said, to ensure succession does not get muddled in those cases.

While these are sometimes depressing subjects to consider, Schmidlkofer said it is worth it to avoid heartache and family rifts later.

“If there is anything a bad farm plan does, it is tear apart a family,” she said. “You do not recover from that.”

To highlight common errors, Schmidlkofer used several examples from real-life celebrity cases.

Actor James Dean, who died in 1955 at age 24, never wrote a will, meaning his entire estate was passed to his father — even though his father had abandoned him as a child.

“The first lesson here is to make sure you at least get something in place,” Schmidlkofer said.

Actress, singer and model Marilyn Monroe left 75% of her estate to her acting coach, Lee Strasberg, with “wishes” to donate the rest to charity. Strasberg later married, however, and when he died in 1982, the estate plus all licensing and royalty fees went to his widow.

“The lesson here is that you want to make sure whatever plan you have is going to stand,” Schmidlkofer said. “Litigation is rampant with farms and ranches. … Someone dies, and then they change the plan. It just causes so much heartache in families when something like that happens.”

Schmidlkofer recommended farmers meet with an estate attorney to help review their personal assets, think about how they should be distributed and whether that matches their business plan.

She said an effective succession plan allows producers to “give what I have to whom I want, the way I want, when I want.”

“The family succession plan needs to be well thought out,” she said.