What is fair is not always equitable, and what is equitable is not always fair. So what is fair?
After serving in the Korean War, Claude purchased his first milk machine and tank with the monies he received from the GI Bill. As his farm neighbors passed on, he was able to purchase the surrounding farm acreage. A couple years after buying his first milk machine, he had his first son, Sam. Then a few years later, Gerald, then a few years later, Laura, and then a few years after that, Chad. Over the years, the eldest son Sam was the one who, whether by father’s decree, innate skill or want, worked the farm. The other siblings pursued other avenues and careers off the farm. One had worked the farm, but was eventually fired by Claude. The others were too young, and too reckless. The farm grew over time, and was organized as a corporation in 1976.

Sam continued to work the farm, and gave up the opportunity to go to college, to continue to help his father. Sam’s brothers and sister had left the farm only to come back to play on the farm, and let their kids do the same.

Sam eventually acquired a 30% interest in the farm and became its vice president. When Sam was 33 years old, he was involved in a very serious farm accident, and nearly lost his hand. However, an amazing Army doctor had been doing rounds at the hospital, and saved his hand. While Sam’s hand was permanently disfigured, he never lost a step with his work after his recovery, and continued to aid the farm in its continued growth.

As time moved on, Sam continued to do all manual labor, and worked with Claude in making business decisions. While Claude and Sam were business partners, they were father and son first. This dynamic made for an interesting and contentious relationship.

In 1994, Claude created an estate plan that upon Claude’s death, gave Sam enough shares to permit him to be 51% owner. However, the stock came with strings attached – upon Sam’s death those shares had to be sold to his brothers and sister at a severely discounted rate. This did not sit well with Sam for several reasons. For example, upon Sam’s death, how would his wife and family be taken care of? Sam had purchased land and built a house on the land yards from the main entrance into the farm. What would the quality of life be for his wife and children if his siblings controlled the farm that surrounded his home? Additionally, how would he be able to operate a business with his brothers and sister – they didn’t know farming like he did?

In Farming: Great Minds Separated by Generations
Do Not Think Alike Until …
In Sam’s mind, Claude’s estate plan threatened Sam’s livelihood, disrespected the sacrifices he had made in the furtherance of the family business, and overlooked his efforts in building a more successful farm than what Claude could have built alone. Sam was especially mindful of his relationship with his brothers and sister and that litigation would likely ensue at some point following Claude’s death. In fact, Sam found out that his brother had taken Claude to his own estate planning attorney to change his estate plan. While ultimately there were no changes, this intensified the lack of trust Sam had in his brother.

In Claude’s mind, his estate plan divided his estate equally between his children. Equality, he was told by his attorney, was the goal. As a retired Army drill sergeant, Claude always considered himself the boss, and didn’t want to give up control during his life even though he knew the farm would be destroyed if he died without making changes to his estate plan. He wanted his son to get the farm – but didn’t want him to receive a disproportionate monetary windfall.

What is Fair is Not Always Equitable, and What is Equitable is Not Always Fair
Sam had been entrusted with his father’s estate plan many years back, and had a copy of all of the documents. Sam had his daughter, a seasoned estate planning attorney, review Claude’s estate plan. Sam’s daughter was able to explain the contents of the documents thoroughly to her father, and also to her grandfather. Her grandfather was quite concerned by what would happen upon his death. At one point, Claude’s granddaughter looked him in the eye and simply said, “You know what is going to happen. Do you want that?” To which Claude responded, “I know – and no, I don’t want that.” Claude’s granddaughter arranged a meeting with Claude’s attorney.

A meeting was held at Claude’s attorney’s office, with Claude and his attorney, Sam and Sam’s daughter all in attendance. This was an intense meeting. At one point, Claude’s attorney stormed out telling Sam’s daughter that she was condescending. Later, Sam raised his hand, shook it at his father, and said “this is my retirement.” The years of not talking about the farm’s succession had nearly ruined their father-son relationship, and the farm business. The emotions were a necessary evil to save the farm.

After the family theatrics, the men put on their big boy pants and talked business. To equalize the estate distributions, the men decided on a couple of pieces of property that could be removed from the corporation and distributed at death. Given that Claude’s main goal was to continue the farm operations, the capital gains on the land distributions were to be borne by the recipients (there was no step up in basis on the farm land because it was in the corporation and was being distributed by contractual agreement, not by operation of Claude’s death). The heirs had a choice – and Sam could continue the farm uninterrupted. Sam’s daughter suggested that Claude to tell each child what had happened that day. And so he did — Claude told Gerald, Laura and Chad within a week’s time. Claude’s attorney sent letters notifying them of the same. Claude’s Revocable Living Trust was amended to reflect the changes made to the business documents.

Unfortunately, Claude died the next year unexpectedly. At the time he made the arrangements above, he was in good health and had no expectation that he would not be with us for much longer. Because Claude and Sam made tough decisions and looked their farm continuation and succession concerns in the eye, today, Sam and Claude’s farm continues to be farmed. In fact, Claude’s estate administration almost was uneventful.

Coordination & Follow Through is Key!
Almost uneventful – let me explain: Apparently, Claude’s attorney failed to retitle, i.e., fund, a large bank account held in Claude’s individual name (even though Claude’s attorney assured Sam’s daughter that everything had been funded), and Claude’s Will had to be used. As with all wills, a Probate was now required, and therefore a personal representative had to be appointed, and the heirs had to sign off on the appointment. The personal representative was the same as who was appointed trustee under Claude’s trust, so there should not have been any hiccups. However, an aspect of Claude’s privacy was sacrificed – as Probate is a public process where his neighbors could inquire about his assets.

Further, the siblings thought it was odd that a Probate was required and became very skeptical of the process and of Sam’s handling of the situation. The heirs accused Sam of hiding assets (which of course had not occurred). Claude’s attorney, now representing Sam as the personal representative and trustee told Sam, “I guess you and your dad were right.” What Claude and Sam knew all along was that Gerald, Laura, and Chad would act to hurt the farm if given the opportunity. It goes to show you that when the patriarch dies, so does the rationality of the family.

The Rest of the Story…
So how did it all end? Sam finished planting his beans with a very heavy heart following his father’s death – because as we all know, the work never stops on the farm. Low and behold, that planting became the best crop Sam had ever had – honest to God true story.

Despite a few hiccups, the farm succession plan carried on exactly as planned – and the farm has continued on exactly as intended. Sam’s daughter has been credited with “saving the family farm” … well, for at least one more generation that is.