Don’t Wait to Plan Your Estate
April 20, 2018
Written By Connie Haden
I recently had the difficult task of sitting by the hospital bed of a farmer in his early 80s to discuss his estate plan. This man, who was suffering from the late stages of cancer, had two children. One child had farmed with his father all his life and one child had moved to town and taken a different career path. This farmer’s wife was living in the nursing home because she was in the late stages of dementia.
The farmer had been thinking for years about what he should do with his estate but had never made a plan because he couldn’t quite figure out how to treat his children fairly and continue to provide for his wife. He owned a successful farming operation with many acres of farmland, equipment and livestock. Unfortunately, in this situation, his options were limited because of the short amount of time he had left and because his wife no longer had the ability to sign new documents.
Sadly, this situation is very common. Farmers wait and wait, trying to develop the perfect plan, and end up with no plan at all. Estate planning for agricultural operations is more critical now than ever before because the value of farm assets is still near all-time highs, and the family arrangements involved in maintaining and operating a family farm have become more complicated. Good planning can ensure your loved ones are able to keep the family farm together and help avoid fighting and wasted resources within the family after you are gone.
I wanted to spend time discussing some common questions I get regarding the estate planning process. Perhaps some of these issues will strike a note with you.
1) What’s the difference between a will and a trust?
Wills and trusts basically perform the same function of stating what will happen to your assets when you die. Wills tend to be simpler documents that provide instructions to the probate court about how to divide and distribute your assets when you die. A trust tends to be a more in-depth document that sets out instructions for a trustee on the management of your assets after you are gone.
2) Should I have a will or a trust?
Many clients tell me they don’t have enough assets to have a trust. However, I recommend trusts based on the details of your situation rather than the amount of your assets. For example, I recommend trusts for clients who have minor beneficiaries, have a farming operation or business they want to divide among their children, are in a second marriage, or are worried about one of their children getting divorced or being unable to deal with money. A well-drafted trust allows you to give much more sophisticated instructions and directives regarding the ongoing management of your assets after you’re gone.
3) Why should I avoid probate?
Probate is the court process of moving the assets titled in a deceased person’s name to the name of the person who should receive it after that person is gone. If you have ever been involved in probate, you know why you want to avoid it. This process is expensive and time-consuming. At a minimum, it will take about nine months to get through probate (often longer), and you will pay two to three percent of the value of the assets in attorney’s fees.
4) How should my assets be titled?
You may have the best estate plan in the world, but if your assets (land, bank accounts, vehicles, etc.) aren’t titled in a way that coordinates with the estate plan, these assets may end up going through the probate court or into the hands of the wrong beneficiary.
5)How do I avoid probate?
Probate can be avoided in a couple of ways. One of the most common ways is to establish a trust. The other way is to use non-probate transfers. These are transfers that occur outside of probate and are like contracts with institutions that hold the assets. Examples of non-probate transfers are payable-on-death designations on bank accounts, beneficiary designations on life insurance and beneficiary deeds for real estate.
6) Should I have a Power of Attorney?
Anyone over the age of 18 should have a power of attorney. However, not all powers of attorney are created equal. Among other things, your designated agent should have the power to move assets into a trust and change beneficiary designations. These powers may be important if you become incapacitated, and they must be specifically stated in the document.
7) Should I have a Health Care Directive?
Anyone over the age of 18 should also have a health care directive. This document can go by many names (living will, durable power of attorney for health care), but the important part is it states your wishes regarding health care and end-of-life decisions. It names someone to make health care decisions for you if you cannot.
8) How will I pay for the nursing home?
Unfortunately, your health insurance and Medicare will not pay for long-term stays in the nursing home. The three general options for paying for a stay in the nursing home are: private pay (you pay for the expense out of pocket), long-term care insurance (which may cover most of the cost, but probably won’t cover all of it) or Medicaid (the state pays for your care). This is a complicated issue, and I suggest consulting an attorney experienced in these matters if a nursing home stay seems to be on the horizon.
9) How do I make it fair?
Particularly with farming operations, a fair division of the estate is not always an equal division. Careful thought should be given to how the plan will be carried out after you are gone. A generic division (which usually means an equal division) often does not work for a family farm.
10) Should I have an LLC?
An LLC is a limited liability company. We use LLCs to limit the assets that may be taken in the event of a lawsuit, to transition the operation to the next generation and to establish various ownership and management structures. An LLC will not eliminate liability and adequate insurance is always your best line of defense. As with any new arrangement, you should weigh the managerial headaches against the potential benefits.
11) Does my plan actually do what I want it to do?
This question seems obvious, but it’s wise to occasionally review your estate plan and make sure it accurately reflects your wishes.
Good estate planning can ensure that your farming operation carries on into the future and that your family remains close after you are gone. With those goals in mind, you should begin planning now.