Northeast Iowa farmers Tom and Irene Frantzen have so many questions to consider about their farm legacy: Should the farm pass to their children? What if they don’t have lineal descendants in the future? What will happen if one of them gets a major illness next year? Is more life insurance needed? How do they ensure that their farm continues as a conservation farm in perpetuity?
All the questions are “enough to give you a headache for a month,” Tom says. “This is the front line of generational transfer. And it is not easy.”Foremost in their minds: Provide for their three children, Jess, Jolene and James — but keep the farm together.
Near New Hampton in Chickasaw County, Frantzen Farm is a showcase stewardship farm: 320 owned acres with 285 tillable acres and three miles of shelterbelts. The Frantzens have a 60-head beef-cow herd and a brood-sow herd of 40. They use a diversified seven-year organic crop rotation of corn, soybeans, corn, succotash, hay and pasture. Tom and Irene also are co-owners of an organic feed business called Frantzen Farm Feeds LLC.
Tom and Irene’s daughters, Jess and Jolene, are grown and away from the farm; their youngest child, James, purchased acreage just north of them two years ago. He works for Organic Valley and farms with Tom and Irene, right now contracting with them to supply feeder pigs.
Making good decisions
Holistic management is guiding their legacy planning process, as it has guided all of their major decision-making. “Holistic management is really about making good decisions. And you cannot make good decisions without figuring out what you most want out of life,” Tom says. “Then you test your actions against your values.”
To help them work through succession issues, Tom and Irene meet with farm transition consultant Myron Friesen of Farm Financial Strategies in Osage. “Facilitation is terribly important when you have the discussion about your farm’s future direction. Myron has given us the bigger, broader picture,” says Tom.
It was because of Friesen’s advice that Tom and Irene have decided that they should put their tillable acres into an irrevocable trust. “As Irene and I age we become a potential liability. We want to prevent a situation where the land would be sold and the proceeds used for our care. It is fine to have the earnings of the land be used for our needs but never the capital asset.”
Within a year, Tom and Irene “won’t own those tillable acres anymore. Land ownership will be owned by an entity,” says Tom. They will pay rent to the trust so the taxes and maintenance can be paid by the trust. They will get the usual farm income from crop and livestock activities. If he chooses, James will rent from the trust as well.
“The rent will be set to be favorable to the tenant, say 50% or 60% of market rate, that’s designed to avoid pressure to take it to intensive cropping. We’re going for long-term sustainability rather than maximum short-term economic return,” Tom says. And there will be certain stipulations set in place, Irene adds. “We’re not going to specify that the farm has to be farmed organically, but it will need to be farmed in a sustainable fashion.”
Life insurance policies also play a part in the Frantzens’ plans. Tom has a paid-in-full whole life insurance policy; they are in the process of buying one for Irene.
Tom goes on: “We really have to address the fact that our health will be a liability to this place. Look at the disaster potential here for this farm. We get killed. James gets killed. He gets married and divorced. One of us has a catastrophic health problem.
The list of dangers here is huge. To protect the land, it has to go into an entity. Then if we become a liability against it, we get so much income per year, and we cannot touch the principal. That’s OK. We end up in the care center, and that’s fine. Selling this farm off when we go into the care center: That’s not fine. That’s a total violation of everything we’ve done here.”
Time to have a discussion
The Frantzens’ legacy planning is still in process. “We’ve got a few things on paper and pretty much an idea of what we are going to do,” Tom says. Both Tom and Irene believe farmers “should have this discussion when you’re in your 50s. There are more options at this point. As you get older, eventually your options are few. Time is not on your side.”
Whatever they decide on the details, they are clear that land ownership will end with Tom and Irene. “Land is too valuable an asset to be owned by one individual. It’s too much risk,” Tom says. “Sure, it’s great to own a farm. But it’s a temporary joy.”
Despite the sometimes uncomfortable discussions on their mortality and the painful consideration of their children not surviving them, Tom and Irene seem serene and even energized by the legacy planning they are doing. “We are not living in denial,” Tom says. “If we do nothing, we threaten all we’ve worked for.”
Opheim is executive director of Practical Farmers of Iowa. Are you working on your legacy and willing to share your thoughts and considerations? Contact Opheim at Teresa@
practicalfarmers.org or 515-232-5661.
DECISION TIME: Tom and Irene Frantzen are working through legacy planning for the family farm. “We are not living in denial. If we do nothing, we threaten all we’ve worked for,” says Tom.
PROTECTION: An irrevocable trust protects the farm’s legacy. “We want to prevent a situation where the land would be sold and the proceeds used for our care,” says Tom Frantzen.
This article published inthe July, 2011 edition of WALLACES FARMER.
All rights reserved. Copyright Farm Progress Cos. 2011.