Succession Planning for Farm Transition and Estate Planning

If you think it’s bad that 60% of farmers don’t have a will, here’s what’s even worse: 89% don’t have a farm transfer plan, as reported in the recent article “10 Farm Transition and Estate Planning Mistakes from Farm Journal’s Pork Business. Here are the ten most commonly made mistakes farmers make. Substitute the word “family-owned business” for farm and the problems created are identical.

Procrastination. Just as production methods have to be updated, so does estate planning. People wait until the perfect time to create the perfect plan, but life doesn’t work that way. Having a plan of some kind is better than none at all. If you die with no plan, your family gets to clean up the mess.

Failing to plan for substitute decision-making and health care directives. Everyone should have power of attorney and health care directive planning. A business or farm that requires your day-in-day-out supervision and decision making could die with you. Name a power of attorney, name an alternate POA and have every detail of operations spelled out. You can have a different person to act as your agent for running the farm and another to make health care decisions, or the same person can take on these responsibilities. Consult with an estate planning attorney to be sure your documents reflect your wishes and speak with family members.

Failing to communicate, early and often. There’s no room for secrecy, if you want your farm or family business to transfer successfully to the next generation. Schedule family meetings on a regular basis, establish agendas, take minutes and consider having an outsider serve as a meeting facilitator.

Treating everyone equally does not fit every situation. If some family members work and live on the farm and others work and live elsewhere, their roles in the future of the farm will be different. An estate planning attorney familiar with farm families will be able to give you suggestions on how to address this.

Not inventorying assets and liabilities. Real property includes land, buildings, fencing, livestock, equipment and bank accounts. Succession planning requires a complete inventory and valuation of all assets. Check on how property is titled to be sure land you intend to leave to children is not owned by someone else. Don’t neglect liabilities. When you pass down the farm, will your children also inherit debt? Everyone needs to know what is owned and what is owed.

Making decisions based on incorrect information. If you aren’t familiar with your state’s estate tax laws, you might be handing down a different sized estate than you think. Here’s an example: in Iowa, there is no inheritance tax due on shares left to a surviving spouse, lineal descendants or charitable, religious, or educational institutions. If you live in Iowa, do you have an estate plan that takes this into consideration? Do you know what taxes will be owed, and how they will be paid?

Lack of liquidity. Death is expensive. Cash may be needed to keep the business going between the date of death and the settling of the estate. It is also important to consider who will pay for the funeral, and how? Life insurance is one option.

Disorganization. Making your loved ones go through a post-mortem scavenger hunt is unkind. Business records should be well-organized. Tell the appropriate people where important records can be found. Walk them through everything, including online accounts. Consider using an old-fashioned three-ring binder system. In times of great stress, organization is appreciated.

No team of professionals to provide experience and expertise. The saying “it takes a village” applies to estate planning and farm succession. An accountant, estate planning attorney and financial advisor will more than pay for their services. Without them, your family may be left guessing about the future of the farm and the family.

Thinking your plan is done at any point in time. Like estate planning, succession planning is never really finished. Laws change, relationships change and family farms go through changes. An estate plan is not a one-and-done event. It needs to be reviewed and refreshed every few years.

Reference: Farm Journal’s Pork Business (June 28, 2021) “10 Farm Transition and Estate Planning Mistakes

 

Why Is It Important to have a Will?

A Gallup poll released in June showed that slightly less than half of all Americans have a will to tell loved ones what they want to happen with their estate after they die. What’s surprising is that the results of this survey have been almost the same since 1990, explains the article “6 Reasons You Need to Make a Will Now” from Real Simple. The survey also showed that upper-income Americans are more likely than lower-income Americans to have a will, and the younger people are, the less likely they are to have a will.

One of the lessons from the pandemic, is how fragile our lives are. It’s never too early to start planning and properly document your wishes. If you need more reasons to begin estate planning, here are six:

No will often leads to unwanted consequences. A major misconception is the idea that you don’t need a will because everything you own will go to your family. Not necessarily. Each state has its own laws about what happens if you have no will, and those laws are usually based on bloodlines or kinship. Most states leave two-thirds of your assets to your children and one-third to your spouse. Will your spouse be able to maintain the same standard of living, or even remain in the family home if this is how assets are distributed? A no-will situation is a no-win situation and can fracture even the best families.

Wills are used to name guardians for minor children. No parent, especially young parents, thinks that anything will happen to them, or even more unlikely, to both parents. However, it does. Creating a will offers the opportunity to name guardians to care for your children after death. If you don’t designate a guardian, a judge will. The judge will have never met your children, nor understand your family’s dynamics, and might even determine that the children should be raised by strangers.

Wills and pet trusts can protect pets after your demise. If you have beloved animal companions, it’s important to understand what can happen to them after you die. The law considers pets to be property, so you can’t leave money to your pet. However, you can create a pet trust and name a person to be the caregiver for your pet, if it survives you. The trust is enforceable, and the pet’s care can be detailed. Otherwise, there is no guarantee your pet will avoid being euthanized.

Taxes are part of death. Creating an estate plan with an experienced estate planning attorney who is knowledgeable about estate taxes, could save your heirs from losing a significant part of their inheritance. There are many tools and strategies to minimize taxes, including making charitable gifts. Plans for large estates can be structured in a way to avoid as much as 40% of tax exposure. It’s even more important to protect a smaller estate from being lost to taxes.

Peace of mind. Remember, wills and estate plans are not just for the benefit of the person who creates them. They are for the family, the surviving spouse, children, and grandchildren. If you did not take the time and make the effort to create an estate plan, they are the ones who will live with the consequences. In many cases, it could change their lives—and not for the better.

Putting it off never ends well. When you’re young and healthy, it seems like nothing can ever go wrong. However, live long enough, and you learn life has ups and downs and unexpected events—like death and serious illness—happen to everyone. Creating an estate plan won’t make you die sooner but having one can provide you and your loved ones with security, so you can focus on living.

If you need a will created, contact an experienced estate planning attorney who can help you.

Reference: Real Simple (June 25, 2021) “6 Reasons You Need to Make a Will Now”

 

What Is Probate and How Does It Work?

Probate is a legal process created long ago to protect the interests of a person after their death. It establishes a documented, validated, formal court procedure to establish title (ownership) and transfer ownership of a deceased person’s assets, as described in a recent article “Probate still gets lots of questions” from the Pauls Valley Democrat.

Probate accomplishes several goals. One is to fulfill the intentions of the decedent and follow the directions expressed in a written valid will. Another is to prevent the improper acquisition of assets by self-serving heirs or claimants. It provides a formal process to capture and control assets and document them. It also provides for the distribution of all assets in the estate, as directed by the decedent.

A petition is typically filed with the local district court in the county where the person resided at death. It confirms the jurisdiction of the court and defines the scope of the estate. This includes:

  • Fact of death and name of the decedent, included in the original copy of the death certificate
  • Residency of the decedent
  • Whether there was a will (original will is filed with the court)
  • Name of the executor or personal representative
  • Names of all potential heirs
  • The approximate size and scope of the estate

After documents are filed, a hearing takes place and formal notice is provided to all known heirs and to the public. This is where probate becomes problematic. Any known heirs who are notified may not always be named in the will and could bring claims against the estate. Any person who wishes to find out the size and scope of the estate may do so. This often brings creditors and predators into the process. Many scammers rely on probate notices to find fresh victims.

While the traditional goals of providing an open and fair opportunity to gain notice of the person’s death may have worked well in the past, today they often provide an opportunity for disgruntled relatives and thieves.

For this reason, many families prefer to take some or all assets from the estate and place them within the protection of a revocable living trust. Assets placed in a trust do not go through probate and will not be mentioned in a will. The trustee is charged with administering and distributing assets in a trust. There is no court involvement. Trusts may also be used during a person’s lifetime, as well as after they have died.

Other assets not governed by probate are those with beneficiary designations. Insurance policies, retirement accounts and investment accounts are among the types of assets distributed directly to the beneficiary without court involvement.

An estate planning attorney takes the best of these old English laws and blends them with our modern realities and current tax laws.

Reference: Pauls Valley Democrat (June 3, 2021) “Probate still gets lots of questions”

 

Estate Planning Matters for Singles

If you’re not married and you have relatives or friends to whom you would like to pass certain assets, then you need an estate plan, says the article “Estate planning important even if you’re not married” from Rocky Mountain Telegram.

If you die without a last will and testament or other estate planning documents in place, a probate court will make the decisions about how to distribute assets according to the laws of your state. That may not be what you wanted, but it will be too bad—and too late.

If you want to leave assets to family members or close friends, you’ll need to plan for this with a last will and testament. The same goes for any donations you may wish to leave to one or more charitable organizations. You could just name organizations in your will, but there are many different ways to give to charity and some have tax benefits for you and your heirs.

One way to leave assets to charity is a Charitable Remainder Trust. Your estate planning attorney will help guide you through the steps. Appreciated assets, like stocks, mutual funds, or other investment securities, are transferred into an irrevocable trust. You get to name the trustee—you could be the trustee, if you prefer—and then you can sell the assets at full market value, avoiding any capital gains taxes that you’d pay if you sold them as an individual.

If you itemize your income taxes, you might be able to claim a charitable deduction on taxes. With the proceeds, the trust can purchase income-producing assets and provide an income stream for the rest of your life. When you die, the assets remaining in the trust will go to the charity or charities that you have named.

Family members and charities aren’t the only ones to consider in an estate plan for a single person. You need to prepare to protect yourself. With the absence of an immediate family, being protective of your financial and health care decisions requires a durable power of attorney and a health care proxy, among other documents.

The durable power of attorney authorizes a person of your choice to manage finances, if you were to become incapacitated. This is especially important when there is no spouse to take on this role. Your health care proxy, also known as a medical power of attorney, authorizes someone you name to make health care decisions on your behalf, if you are unable.

Estate planning can be complex. An experienced estate planning attorney will be an invaluable resource as you go through the process. Who will be the best candidate to select as your power of attorney? What other documents do you need to ensure that your assets go to the people or charities you want? Once this is done, you’ll be prepared for the future—and protected.

Reference: Rocky Mountain Telegram (June 6, 2021) “Estate planning important even if you’re not married”

 

Your Will and Estate Planning Checklist

Dying without a last will creates additional costs and eliminates any chance your wishes for loved ones will be followed after your death. Typically, people think about last wills when they marry or have children, and then do not think about last wills or estate plans until they retire. While a last will is important, there are other estate planning documents that are just as important, says the recent article “10 Steps to Writing a Will” from U.S. News & World Report.

Most assets, including retirement accounts and insurance policy proceeds, can be transferred to heirs outside of a will, if they have designated beneficiaries. However, the outcome of an estate may be more impacted by Power of Attorney for financial matters and Medical Power of Attorney documents.

Here are ten specific tasks that need to be completed for your last will to be effective. Remember, if the will does not comply with your state’s estate law, it can be declared invalid.

  1. Find an estate planning attorney who is experienced with the laws of your state.
  2. Select beneficiaries for your last will.
  3. Check beneficiaries on non-probate assets to make sure they are current.
  4. Decide who will be the executor of your last will.
  5. Name a guardian for minor children, if yours are still young.
  6. Make a letter describing possessions and who you want to receive them. Be very specific.

There are also tasks for your own care while you are living, in case of incapacity:

  1. Name a person for the Power of Attorney role. They will be your representative for legal and financial matters, but only while you are living.
  2. Name a person for the Medical Power of Attorney to make decisions on your behalf, if you cannot.
  3. Create an Advance Directive, also known as a Living Will, to explain your wishes for medical care, particularly concerning end-of-life care.
  4. Discuss these roles and their responsibilities with the people you have chosen, and make sure they are willing to serve.

Be realistic about the people you are naming to receive your property. If you have a child who is not good with managing money, a trust can be set up to distribute assets according to your wishes: by age or accomplishments, like finishing college, going to rehab, or maintaining a steady work history.

Do not forget to tell family members where they can find your last will and other estate documents. You should also talk with them about your digital assets. If accounts are protected by passwords or facial recognition, find out if the digital platform has a process for your executor to legally obtain access to your digital assets.

Finally, do not neglect updating your last will every three to four years or anytime you have a major life event. An estate plan is like a house: it needs regular maintenance. Old last wills can disinherit family members or lead to the wrong person being in charge of your estate. An experienced estate planning attorney will make the process easier and straightforward for you and your loved ones.

Reference: U.S. News & World Report (May 13, 2021) “10 Steps to Writing a Will”

 

When Should Children Receive an Inheritance?

Should an inheritance remain an inheritance, given to children only after their parents die, or should parents use some of the money to help their kids out while they are still living? That’s a question that many families grapple with, reports a recent article “When to Give Inheritance Money to Your Kids,” from The Wall Street Journal.

Not every family can afford to give their children an advance on their inheritance, but for those who can, there are some things to consider:

Some financial advisors believe that “gifting with warm hands” is a better way to go. Parents can enjoy seeing their children and grandchildren benefit from having the help, based on when it is needed. Decoupling an inheritance from parental death is a happier scenario than the alternative.

Others believe that current financial needs, taxes and the tax situations of the parents and children ought to be the deciding factor. First, is there enough money for the parents to live comfortably in retirement? That includes being prepared for the cost of an unexpected health crisis that might lead them to need short- and long-term care. Follow that by understanding the tax situation of both parents and heirs. Once those answers are fully formed, then a discussion about gifting can move forward.

Another school of thought is to stop saving every penny and enjoy life to its fullest right here, right now. Some people are more concerned with maxing out their 401(k) plans than enjoying their lives. A healthy balance between protecting assets for later years, creating wealth for the next generation and having some fun too is the goal for many families.

Regardless of how you see your situation, one thing is sure: if you have any concerns about how your children will handle an inheritance, make a gift while you are living. You’ll get to see how they handle it, responsibility or recklessly. This may inform your planning for the future, including the use of spendthrift trusts.

The pandemic has forced many people to confront their own mortality and consider how they really want to spend the rest of their lives, as well as their assets. Many parents are preparing to make changes in their estate and gifting plans to accommodate needs that have arisen as a result of COVID’s economic impact.

Talk with your children about finances—yours and theirs. Discuss their needs, especially if they have been unemployed for an extended period of time. If they need money for something critical, like paying for health insurance or catching up on student loans, the gift should be made with a clear understanding of its intended purpose.

Your estate planning attorney can help create a plan that works while you are living and after you have passed. Trusts may be a strategic plan for sharing assets while you are alive, with some tax advantages.

Reference: The Wall Street Journal (April 30, 2021) “When to Give Inheritance Money to Your Kids”

 

Can Estate Taxes Be Avoided with a Trust?

If the federal estate tax exemption is lowered, as is expected, it could go as low as $3 million, reports the article “How Trusts Can Be Used To Counter Tougher Estate Taxes” from Financial Advisor. For Americans who own a home and robust retirement accounts, this change presents an estate planning challenge—but one with several solutions. Trusts, giving and updating estate plans or creating wholly new estate plans should be addressed in the near future.

Not that these topics aren’t challenging for most people. Confronting the future, including death and incapacity, is difficult. Adult children and their parents may find it hard to talk about these matters; emotions, death and money are tough to talk about on their own, but estate planning includes conversations around all three.

Once those hurdles are overcome, an unemotional approach to the business of estate planning can accomplish a great deal, especially when guided by an experienced estate planning attorney. Here are a few suggestions for families to consider.

Estate and gift planning techniques include Grantor Retained Annuity Trusts (GRATs) and Spousal Limited Access Trusts (SLATs). A SLAT is an irrevocable trust created when one spouse (the donor spouse) makes a gift into a trust to benefit their spouse (the beneficiary spouse), while retaining limited access to the assets at the same time they remove the asset from their combined estate. One spouse is permitted to indirectly benefit, as long as the couple remains married.

The indirect access disappears, if the spouses divorce or if the beneficiary spouse dies before the donor spouse. Be careful about creating SLATs for both spouses; the IRS does not like to see SLATs with the same date of origin and the same amount for both spouses.

The GRAT and sales to an Intentionally Defective Trust (IDGT) are useful tools in a low-interest rate environment. For a GRAT, property is transferred to a trust in exchange for an annual fixed payment. A sale to an IDGT is where property is sold to a trust in exchange for a balloon note.

Gifting is an important part of estate planning at any asset level. For 2020 and 2021, the annual gift-tax exclusion is $15,000 per donor, per recipient. The simple strategy of aggressive lifetime gifting using that $15,000 exclusion is a good way to get money out of a taxable estate.

Protect the estate plan by reviewing it every four or five years, and sooner if there are large changes to the tax law—which is coming soon—and changes in the family’s circumstances. Contact your estate planning attorney to review your plan.

Thoughtful use of trusts and gifting strategies can avoid the probate of the will and ensure that assets go directly to heirs. Reviewing the estate plan regularly with an eye to changes in tax law will protect the legacy.

Reference: Financial Advisor (April 19, 2021) “How Trusts Can Be Used To Counter Tougher Estate Taxes”

 

Can a Person with Alzheimer’s Sign Legal Documents?

If a loved one has been diagnosed with Alzheimer’s disease or any other form of dementia, it is necessary to address legal and financial issues as soon as possible. The person’s ability to sign documents and take other actions to protect themselves and their assets will be limited as the disease progresses, so there’s no time to wait. This recent article “Financial steps to take when dealing with Alzheimer’s” from Statesville Record & Landmark explains the steps to take.

Watch for Unusual Financial Activity

Someone who has been sensible about money for most of his life may start to behave differently with his finances. This is often an early sign of cognitive decline. If bills are piling up, or unusual purchases are being made, you may need to prepare to take over his finances. It should be noted that unusual financial activity can also be a sign of elder financial abuse.

Designate a Power of Attorney

The best time to designate a person to take care of finances is before she shows signs of dementia. It’s not an easy conversation, but it is very important. Someone needs to be identified who can be trusted to manage day-to-day money matters, who can sign checks, pay bills and supervise finances. If possible, it may be easier if the POA gradually eases into the role, only taking full control when the person with dementia can no longer manage on her own.

An individual needs to be legally competent to complete or update legal documents including wills, trusts, an advanced health care directive and other estate planning documents. Once such individual is not legally competent, the court must be petitioned to name a family member as a guardian, or a guardian will be appointed by the court. It is far easier for the family and the individual to have this handled by an estate planning attorney in advance of incompetency.

An often-overlooked detail in cases of Alzheimer’s is the beneficiary designations on retirement, financial and life insurance policies. Check with an estate planning attorney for help, if there is any question that changes may be challenged by the financial institution or by heirs.

Cost of Care and How It Will Be Paid

At a certain point, people with dementia cannot live on their own. Even those who love them cannot care for them safely. Determining how care will be provided, which nursing facility has the correct resources for a person with cognitive illness and how to pay for this care, must be addressed. An elder law estate planning attorney can help the family navigate through the process, including helping to protect family assets through the use of trusts and other planning strategies.

If the family has a strong history of Alzheimer’s disease or other cognitive diseases, it makes sense to do this sort of preparation far in advance. The sooner it can be addressed, even long before dementia symptoms appear, the better the outcome will be.

Reference: Statesville Record & Landmark (April 11, 2021) “Financial steps to take when dealing with Alzheimer’s”

 

What Happens when Homeowner Dies without Will?

When parents die suddenly, in this case due to COVID-19, and there is no will and no discussions have taken place, siblings are placed in an awkward, expensive and emotionally fraught situation. The article titled “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?” from MarketWatch sums up the situation, but the answer is complicated.

When there is no will, or “intestacy,” there aren’t a lot of choices.

These parents had a few bank accounts, owned their home outright and left no debts. They had six adult children, including one that died and is survived by two living sons. None of the siblings agrees upon anything, so nothing has been done.  One of the siblings lives in the house rent free. Another brother was loaned $35,000 for a down payment on a mobile home. He now claims that the loan was a gift and does not have to pay it back. There are receipts, but the money was paid directly to the escrow company from the mother’s bank account.

How do you determine if this brother received a loan or a gift? What do you do about the brother who lives rent-free in the family home? How does the family now move the estate into probate without losing the house and the bank accounts, while maintaining a sense of family?

For starters, an administrator needs to be appointed to begin the probate process and act as a mediator among the siblings. In some states, the administrator also requires a family tree, so they can know who the descendants are. Barring some huge change of heart among the siblings, this is the only option.  If the parents failed to name a personal representative and the siblings cannot agree on who should serve, an estate administration lawyer is the sensible choice. The court may name someone, if there is concern about possible conflicts of interests or the rights of creditors or other beneficiaries.

A warning to all concerned about how the appointment of an administrator works, or sometimes, does not work. Working with an estate planning attorney that the siblings can agree upon is better, as the attorney has a fiduciary and ethical obligation to the estate. While state laws usually hold the administrator responsible to the standard of care of a “reasonable, prudent” individual, not all will agree what is reasonable and prudent.

One note about the loan/gift: if the mother helped a brother to qualify for a mortgage, it is possible that a “Gift Letter” was created to satisfy the bank or the resident’s association. Assuming this was not a notarized loan agreement, the administrator may rule that the $35,000 was a gift. Personal loans should always be recorded in a notarized agreement.

This family’s disaster serves as a good lesson for anyone who does not have an estate plan. Siblings rarely agree, and a properly prepared estate plan protects more than your assets. It also protects your children from losing each other in a fight over your property.

Reference: MarketWatch (April 4, 2021) “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?”

 

Have Estate Planning Conversations with Aging Parents

Let’s start with this idea: maybe your parents are going to leave you a generous bequest as part of their estate plan. Do you know this for a fact, or is it wishful thinking? The only way to know, advises a recent article from Yahoo! Finance titled “How To Talk to Your Parents About Their Estate (Without Making It Awkward),” is to have a conversation, or a series of conversations. It’s not the first awkward conversation you’ll have with your parents, but it may be a bit stickier than you expect.

No matter how you approach it, this is a sensitive issue. How do you avoid appearing greedy or selfish? There is actually a lot more to know beyond the inheritance issue. You need to know how to ensure that your parents’ wishes are carried out, while they are living as well as after their deaths.

It will be helpful to be aware that the prospective inheritance amount may change over the course of your parents’ remaining lives. You also don’t want your parents thinking that you consider yourself entitled in any way to the assets they have built over the course of their lives. Instead, start the conversation by talking about their estate plan. Explain that you want to be able to follow their instructions. You might reference an article or blog post that you have read about the importance of estate planning. You can also talk about your own estate plan, explaining that you have created an estate plan to protect your children and family members and to be sure that your instructions are followed.

Don’t be afraid to acknowledge how difficult this conversation is for you. Reassure them that you are not looking forward to their demise, but you have concerns about how things will work out when the time does come. Depending upon your family dynamics, holidays may be a good time to address estate planning. This provides an opportunity for all family members to be included and for concerns and plans to be shared among involved siblings.

This does not mean discussing inheritances at the dinner table. Focus on what your parents’ wishes are and include a conversation about what values they would like to pass on to the next generation. If there are family histories or stories to share, this is also part of your inheritance.

Regardless of when or how you approach the topic, you do want to be sure your parents have a plan in place, so there is a path for whoever will be taking care of them and their assets. Ask if they have these key legal documents:

  • A Last Will, also known as a Last Will and Testament
  • A Power of Attorney to designate someone to make financial and legal decisions, if they are not able to do so for themselves.
  • A Living Will or health care directive that will designate someone who can make healthcare decisions and address end of life care for them.

Ask where your parents keep these documents, and how you can find them when the time comes. Are they in your father’s night table, or in a lockbox in the attic? If they have a financial advisor or estate planning attorney, who is that person? You’ll need to be able to access the documents and speak with their estate planning attorney.

A few awkward moments now will help all of you as your parents, and you, move through the coming stages of life.

Reference: Yahoo! Finance (March 25, 2021) “How To Talk to Your Parents About Their Estate (Without Making It Awkward)”