Decatur and Bluffton: passing a farm or family business on without having to sell it

Why is succession harder than running the operation?

Because everything you are good at is about making the operation work this year, and succession is about what happens in a year you will not be there for. There is no feedback loop. Nothing tells you the plan is wrong until it is being executed, and by then the people executing it are grieving.

The other reason is structural, and it is specific to this part of Indiana. Adams and Wells county wealth is mostly in the operation — land, buildings, equipment, breeding stock, receivables, and the going-concern value of a business that a family has run for two or three generations. Those assets share three properties that make them nearly impossible to pass on casually: they cannot be divided, they cannot be sold quickly at a fair price, and they produce no cash on the day cash is needed.

Adams County has 36,227 residents and a median household income of $65,289, the lowest in the ten-county northeast corner, per the Census Bureau's 2024 ACS 5-Year Estimates. Wells County has 28,420 residents and $71,957. Those household-income figures understate the balance sheets substantially, because a family whose net worth is four hundred acres and a shop does not show up as a high-income household on a census form.

Which is exactly the problem. High net worth, low liquidity, indivisible assets, and a plan that in most cases consists of a will written in 2007 and a conversation nobody has had.

What actually has to be paid in the first year?

Start here, because it is the number that decides whether the operation survives intact. When a principal dies, a specific set of obligations arrives on a schedule that does not care about the harvest, the order book, or how anyone feels.

Operating debt continues. Equipment notes continue. Any personally guaranteed note may be accelerated or may trigger a lender demand for new collateral — read the guarantee, because many contain a death-or-disability provision that owners have never noticed. Real estate taxes come due. The estate has administration costs. And if a sibling who is not in the business inherits a share, they may want it monetized.

Then there is the replacement cost of the person. In a family operation the deceased is frequently doing three jobs — running production, managing the banking relationship, and holding the customer or landlord relationships personally. Replacing that is either a hire the business has never budgeted for or a family member stepping into work they are not yet ready for, usually both.

Add it up honestly and the first-year liquidity need in a mid-sized Adams or Wells County operation is routinely several hundred thousand dollars. The question every succession plan has to answer in one sentence is: where does that money come from? If the answer is "we would sell something," name what, and ask what it would fetch in a sale everyone knows is forced.

• Operating and equipment debt — payments continue, and some notes accelerate on the death of a guarantor.
• Real estate and personal property taxes — due on schedule regardless of who is running the operation.
• Estate administration costs — legal, accounting, appraisal and court costs, paid before distribution.
• Replacement labor or management — the job the deceased was doing has to be done by someone.
• Buyout of non-participating heirs — the share that goes to a child who is not in the business.
• Working capital through a disrupted season — the operation still has to buy inputs and make payroll.
• Any accrued personal obligations — a mortgage, medical costs, the surviving spouse's living expenses.

What does Indiana actually tax at death?

Very little, and this is the single most common misconception we correct in this market. The Indiana legislature repealed the state inheritance tax in 2013, and the Department of Revenue states plainly that no Indiana inheritance tax is owed. Indiana also has no state estate tax.

Federal estate tax exists but applies only to estates above the federal exemption, which is high enough that the overwhelming majority of Adams and Wells County families are nowhere near it. If your estate is large enough to be in that conversation, you already have an attorney in it — and if you do not, that is the call to make this month.

So the succession problem here is almost never a tax bill. It is a liquidity and fairness problem, and it is worth being precise about that, because a great deal of financial product gets sold in farm country on the strength of an estate tax that does not apply to the buyer.

The tax that does apply is the ordinary income tax on whatever the family draws from retirement accounts to solve a liquidity crunch. Pulling $150,000 from a traditional IRA to cover a first-year shortfall costs about $6,825 in Indiana and Adams County tax at the combined 4.55% rate, or about $7,575 in Wells County at 5.05% — before federal tax, which at that withdrawal size is a much larger number. Solving a liquidity problem out of a traditional retirement account is the most expensive way to do it.

The fairness problem: equal is not the same as fair

Nearly every family operation eventually runs into a version of this. One child stayed. They took lower wages for fifteen years, worked weekends, learned the operation, and expect — reasonably — to receive it. The other two built lives elsewhere and expect, also reasonably, to be treated equally by their parents' estate.

A will that divides everything equally among three children hands the operation to a partnership of siblings, two of whom do not work in it, cannot easily sell their share, and now have a say in decisions the third one has to live with daily. That arrangement damages both the business and the family, and it is the single most common outcome of doing nothing.

A will that gives the operation to the child who stayed and splits the remainder among all three is fairer in intent, but usually leaves the other two with a small fraction — because in these counties the operation is the estate. That version damages the family too, just on a different timeline.

The way out is to make the estate divisible even though the operation is not. Life insurance is the usual mechanism: a policy sized so that the children who do not take the business receive comparable value in cash, funded over years at a knowable annual cost instead of in one month at whatever a forced sale produces. It is not the only tool — installment sales, gifting programs and trusts all have roles — but it is the only one that creates money on the exact day the money is needed.

Equal is not the same as fair, and neither one is automatic. Whichever you choose, choose it out loud, in writing, while everyone can still ask questions.

The buy-sell agreement, and why unfunded is barely better than nothing

If the operation has more than one owner — siblings farming together, a partner in the shop, a second family in the business — there is a document that decides what happens to an ownership interest on death, disability, divorce, bankruptcy or a decision to leave. In our experience roughly half of the operations in this market either do not have one or have one that was drafted once and never funded.

Unfunded, it is a promise to write a very large check at the worst possible moment. The surviving owner must buy the departing owner's interest from an estate that needs cash, in the middle of the disruption, using either the operation's own cash flow — which a lender is watching under a coverage covenant — or new debt a lender may not approve in exactly those circumstances.

Funded, it is a mechanism. Insurance owned under a cross-purchase or entity-purchase structure puts the money on the table the week it is needed, at a cost that is knowable and budgetable in advance. The structure choice carries real tax and basis consequences and belongs with your attorney and CPA, not on a form.

Two failure modes are worth naming because they are so common. The first is a valuation formula written a decade ago that no longer resembles the operation — land values, equipment values and margins have all moved. The second is coverage bought once and never resized as the business grew. Both are annual ten-minute checks that protect a seven-figure outcome.

Disability is the event nobody plans for

And by the numbers it is more likely than the one everybody does. The Social Security Administration states in its own publication that a 20-year-old worker has a 1-in-4 chance of becoming disabled before reaching full retirement age. In a family operation, the consequences of a disability are in several ways worse than death: the operation loses the person's labor and judgment, and it simultaneously acquires their medical and living costs.

The business-owner version has an extra wrinkle. Owners in this market frequently have no disability coverage at all — the group plan, if there is one, was set up for employees and the owner never enrolled properly, or the operation is a partnership with no group plan in the first place. Self-employed farmers in particular are often carrying zero coverage against the risk that most directly threatens the operation.

The buy-sell agreement should address disability, not only death, and most do not. A partner who is permanently unable to work but very much alive occupies an ownership position indefinitely, drawing on an operation they cannot contribute to, with no mechanism to resolve it. Disability buy-out provisions and disability-triggered funding exist precisely for this, and they have to be written in.

The other half is personal: individual disability income coverage on the principals, sized to what the household actually needs to keep running while the operation absorbs the loss. It is not cheap relative to life insurance, and it is the coverage owners most often decline. It is also the one that pays out most often.

What does the liquidity actually cost?

Less than the outcome it prevents, and the order of magnitude is checkable against a rate card the federal government publishes. On the FEGLI Option B schedule — a federal group plan used here as a published reference rather than an individual quote — $500,000 of coverage runs about $21.50 a month under age 35, about $76.00 in the 45–49 band, and about $119.00 in the 50–54 band.

Two caveats. Group rates step up every five years rather than holding level for a fixed term, and OPM states these rates took effect the first pay period on or after October 1, 2021. So this is a sense of scale, not a quote — but it is a published, verifiable one, which is more than most sales presentations offer.

Put it against the operation. If the first-year liquidity need is $500,000 and the principal is 47, the reference cost is roughly $76 a month — about $912 a year against an operation worth seven figures. Framed as a share of the annual input bill on a mid-sized Adams County farm, it rounds to nothing.

The harder question is term versus permanent. A succession need does not expire in twenty years — it exists whenever the principal dies, which for most people is beyond any level term period. Term is the right tool for a defined-length obligation like a note; a permanent structure is usually what an equalization or buy-sell need actually calls for, and it costs materially more per dollar of benefit. Getting that choice wrong is how families end up with a policy that lapsed at 65 and a problem that arrived at 78.

What about the owner's own retirement?

It is the other half of succession, and in family operations it is routinely the weakest part of the plan. The assumption is that the operation is the retirement plan — that the next generation will fund the parents' retirement out of the business, or that land can be sold as needed.

Both of those work until they do not. A next generation carrying a buyout, an operating line and their own family cannot also reliably fund two retirements. And selling land to fund retirement means the operation the succession plan was designed to preserve gets dismantled a parcel at a time, which is the outcome everyone was trying to avoid.

The alternative is boring and effective: build a retirement asset outside the operation during the working years. For 2026 the IRS set the 401(k) employee deferral at $24,500, rising to $32,500 at 50–59 and $35,750 in the 60–63 window, with a total 415(c) limit of $72,000 across all sources. A SIMPLE IRA allows $17,000, which is cheaper to administer and caps out far lower.

In Adams County every dollar deferred saves the combined 4.55% Indiana rate on the way in; in Wells County, 5.05%. More importantly, it creates a pool of money that is not the operation — so that a bad year, a forced sale, or a succession that does not go as planned does not take the retirement with it. That is the same diversification argument as anywhere else, but it lands harder when a single asset is the business, the retirement plan and the family legacy simultaneously.

What we would actually do with an Adams County family

Take a shape we see often: parents 63 and 61, an operation with land, buildings and equipment worth roughly $2.4 million, one son who has worked it full time for fourteen years, two daughters elsewhere with their own careers, about $190,000 in retirement accounts, a will from 2009, and no buy-sell agreement.

First, the conversation, and it has to happen with all five people in the room. What does the son expect? What do the daughters actually want — an interest, or to be treated fairly in cash? What do the parents intend? Most families have never said any of this out loud, and roughly half the time the answers are less contentious than the parents feared. The other half of the time, finding out now is still far better than the alternative.

Second, a valuation, so every subsequent number is anchored to something. Not a guess and not a tax assessment — a real valuation of the operation and the land, updated on a schedule.

Third, the liquidity number: what would have to be paid in the twelve months after either parent died, including debt service, taxes, administration and any buyout of the daughters' interest. That figure sizes the coverage. On a $2.4 million operation with two non-participating children, it is frequently in the seven-figure range once you include the equalization.

Fourth, the documents: a succession or buy-sell agreement drafted by an attorney with a current valuation formula, disability provisions as well as death provisions, and funding that actually matches the number. Then a calendar reminder to review the valuation and the coverage every single year.

Fifth, the parents' own retirement, built outside the operation — a qualified plan funded deliberately, so nobody has to sell a parcel to pay for a decade of retirement. Run your own version of the coverage arithmetic with the calculators, and our guide to naming beneficiaries and avoiding probate covers the document mechanics that make all of this actually work.

Frequently asked questions

Does Indiana have an inheritance tax on a farm or family business?

No. The Indiana legislature repealed the state inheritance tax in 2013 and the Department of Revenue confirms no Indiana inheritance tax is owed. Indiana also has no state estate tax. Federal estate tax applies only to estates above the federal exemption, which most Adams and Wells County families are well below. The succession problem here is liquidity and fairness, not a state tax bill.

How do you leave a farm to one child and treat the others fairly?

By making the estate divisible even though the operation is not. The usual mechanism is life insurance sized so the children who do not take the operation receive comparable value in cash, funded over years at a knowable annual cost instead of in one month at whatever a forced sale produces. Installment sales, gifting programs and trusts also have roles. Whichever route, it has to be written into the estate documents by an attorney.

What is a buy-sell agreement and why must it be funded?

It is the document that decides what happens to an ownership interest on death, disability, divorce, bankruptcy or departure. Unfunded, it is only a promise to produce a large check at the worst possible moment — while the operation is disrupted and a lender is watching its covenants. Funded, usually with insurance under a cross-purchase or entity-purchase structure, it puts the money on the table the week it is needed at a budgetable annual cost.

What does a family operation actually need cash for in the first year after a death?

Operating and equipment debt service that continues on schedule, real estate and personal property taxes, estate administration costs, replacement labor or management for the work the deceased was doing, any buyout of heirs who are not in the business, and working capital through a disrupted season. Personally guaranteed notes deserve a specific check — many contain a death-or-disability provision the owner has never read.

Why does disability matter more than death in a succession plan?

Because it is more likely and in some ways worse. The Social Security Administration states a 20-year-old worker has a 1-in-4 chance of becoming disabled before full retirement age. A disability removes the person's labor and judgment while adding their medical and living costs, and leaves them holding an ownership interest indefinitely with no resolution mechanism unless the buy-sell agreement includes disability provisions — which most do not.

What is the income tax rate in Decatur and Bluffton, Indiana?

Indiana's flat state rate is 2.95% for 2026. Adams County adds 1.60%, so a Decatur resident pays a combined 4.55%. Wells County adds 2.10%, so a Bluffton resident pays 5.05%. Your county rate is set by where you lived on January 1, not where the operation is located, which matters for a family living across a county line from the farm.

Should I use retirement savings to solve a succession liquidity problem?

It is the most expensive option available. A $150,000 withdrawal from a traditional IRA costs about $6,825 in Indiana and Adams County tax at the combined 4.55% rate, or about $7,575 in Wells County — before federal tax, which at that withdrawal size is far larger. Pre-arranged liquidity, whether insurance or a credit facility set up in advance, is materially cheaper than liquidating tax-deferred accounts under pressure.

Should succession coverage be term or permanent insurance?

It depends on whether the obligation expires. Term is the right tool for a defined-length obligation such as a note that amortizes over fifteen years. An equalization or buy-sell need does not expire — it exists whenever the principal dies, which for most people is beyond any level term period, which usually points to a permanent structure. Getting this wrong is how families end up with a policy that lapsed at 65 and a problem that arrived at 78.