If I had a dollar for every time I heard people say, “We didn’t have $5 million, so we assumed we didn’t need an Estate Plan,” then I would likely have $5 million! Estate planning is not all about estate taxes. In fact, the majority of our clients do not even have estate tax issues. With the federal estate tax exemption in 2014 at $5,340,000, and scheduled to be indexed for inflation, many married couples have assets below $10,680,000, and estate taxes are not much of a concern. (Of course, this assumes that the exemption amount will remain this large, but that’s a different article for a later time.)
In agricultural estate planning, estate taxes are not the real issue. The real issue is this: how do you keep a family, a family and a farm, a farm? How do you achieve the equality you want but yet keep the operations viable? Put another way, how do you create a system of distribution that you believe is fair and lets you sleep at night? Now, don’t get me wrong; we certainly address estate taxes, but the distribution goals have to come first.
In estate planning, we need to face real-world issues. Regardless of whether a son or a daughter is taking over the operations, you have to address such issues as:
- What if you simply give your farming son all the land, and he dies and his wife sells. Is that fair?
- What if you give your farming daughter a favorable purchase option, and she cannot meet the payment terms? What then?
- What if your son has only been in the operation for five years, and he buys the land at a steep discount, but then sells three years later? Is that the plan you intend for your other children?
- What if your farming child wants to buy the neighbor’s land, but he or she is tied up in paying down debt to siblings? Is that the best solution?
These are just a few examples of ag-related issues. Many other real-life issues need to be considered as well. For instance, you may think that your spouse is an amazing catch as a mate (I hope you do!). You may not be alone in that thinking. What if you are not here, is there a fear that he or she will be swept off his or her feet by somebody else? While remarriage can be a wonderful blessing, without proper planning, a remarriage can put a family’s assets and legacy at risk and can have unintended consequences that could have been readily addressed by a proactive estate plan.
I once had a family come visit me from about 120 miles away. The husband was reluctant to make the trip, but his wife was insistent. He had visited with his banker who had told him that while Thompson Law is excellent, he didn’t have $5 million, so he didn’t need to go see Carolyn. However, being the good husband that he is, he decided to take in the free one-hour consultation along with his wife.
Their estate was below $5 million. However, she had concerns that he would remarry. She wanted to make sure the land was safeguarded. It wasn’t a lot of land, but it was all of their land, and it was important to them. We discussed strategies that would safeguard their land but offer flexibility to a surviving spouse. As I asked questions about the family, I learned that one son struggled financially, and dad wanted to give him a break. Dad wanted to make sure that he had pasture ground available so that he could raise some livestock and help supplement his income. He did not want the other children trying to take that land away or trying to get top-dollar rent. Thus, we created a specialized trust that would enable this son to rent the ground for a period of time upon the terms that mom and dad had established, rather than leaving it to the hope that his siblings would be “fair.”
I also learned that one daughter was in a fairly precarious marriage situation. They had hung together, been separated and gotten back together, but it had been a bit of a battle in terms of married life. Dad wanted to make sure that his little girl (who is in her mid-40s but still always daddy’s little girl) had a protective “fence” around the inheritance they wanted to leave her. He did not want her to end up divorced with only half of her inheritance or to be manipulated into spending the inheritance by her on-again, off-again husband. He wanted his little princess to have her own nest egg, safely set aside for her benefit.
Both husband and wife were very happy they had made the trip to discuss options regarding designing their estate plan. They looked at their life, their family, and their goals, and they built a plan together. They realized that estate planning is about so much more than avoiding estate taxes. It’s not just about your net worth. It’s about knowing your family, recognizing the goals you are hoping to achieve, acknowledging the fears you have, and putting a plan in motion to safeguard your assets and your children. It’s about taking the “what if” questions and turning them into “if this, then…” answers by setting out a clear plan that addresses the real-world issues that threaten to tear apart families and farms.