Personal Injury & Estate Planning
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Archive for May 2016

Update Your Estate Plan

Review and Update Your Estate Plan While You Can

Some time ago, a client of mine approached me with a unique problem.  The client’s friend, whom we will call Martin, had recently passed away.

My client explained to me that Martin’s wife died many years ago, and that he had no children. Martin lived alone, and rarely had visitors save for my client and a group of friends, that provided him with companionship and assistance in his old age.  

We discovered that a trust owned Martin’s home.  My client found a copy of this trust, which Martin and his deceased wife signed in 1978.  All of Martin’s successor trustees were dead.  All of the beneficiaries named in the document, which were to receive Martin’s property upon his death, were also dead.  A section of the trust entitled “Remote Contingent Beneficiaries” stated in part that in the event of a failure of beneficiaries, the trustee was to distribute property to the heirs of the named individuals.  This was a problem.  

Update Your Estate PlanTo make a very long and arduous story short, as the process took months to complete and necessarily involved the Court to appoint a trustee, we eventually managed to find a long lost brother-in-law, with whom Martin was estranged, and a niece of one of the named beneficiaries.  These people, who had not visited or called Martin for many years, if ever, inherited the sale proceeds of Martin’s home.  His good friends, whom Martin would have wanted to receive his property, received nothing.   Needless to say, this did not sit well with my client, or his friends, and I am afraid that much of their ire became directed at the author of this story.  It appears that the saying that no good deed goes unpunished is an undeniable truth in this case.  

The Morale of the Story: Review and Update Your Estate Plan

There is a good lesson to be learned from Martin’s case.  If you fail to review your estate plan, even one as basic at Martin’s, unintended results can, and will occur.  Naming successor trustees and administrators, and updating these individuals regularly when circumstances change, is critical in order to make your plan work.  It is also important to give serious thought to what are ordinarily “boiler plate” sections of wills and trusts, which state what happens in the event of a failure of beneficiaries.  Just because it is “boiler plate” does not mean the language in these provisions will not be used and is not important.  Amending a will or trust to address these issues is relatively inexpensive, and it is a good idea to perform these reviews every few years and update your plan accordingly.

 

3 Succession Solutions for Family Farms

3 Succession Solutions for Family Farms

BY MATTHEW T. MCCLINTOCK, J.D. VICE PRESIDENT, EDUCATION, WEALTHCOUNSEL

Splitting up a family farm is hardly a simple process.

Farm families must not only determine how to sustain farm operations in later generations but also how to divide the estate equitably among children. This gets particularly tricky when some kids are working the farm and others are not.

However, building out a detailed succession and estate plan for the family farm is essential. Families that fail to do so put both family harmony and their most valuable asset at risk. According to the USDA, the average value of assets for larger family farms was about $4.5 million in 2014.

3 Succession Solutions for Family FarmsHow Do I Protect My Family Farm through Succession Planning?

How can a family pass the farming business—and access to the land and equipment necessary to run it—to a farming heir without neglecting non-farming family members? Fortunately, there are several ways to reach a compromise. Three of the most common succession solutions for family farms include:

  • Farming heir purchases farm when parents reach retirement age;
  • Farming heir purchases farm after parents’ death; or
  • Parents split the farm up.

The farming heir can purchase the farm from his or her parents once they’ve reached retirement age, and the proceeds can then be incorporated into the parents’ estate plan and divided among heirs accordingly. However, this can result in capital gains and recapture taxes for the parents, which reduces the value of what they’re able to pass on once they die. It also requires that the farming heir either have access to potentially large amounts of money or take out significant debt to complete the purchase.

Alternatively, the farming heir can purchase the farm after the parents’ death. This way, he or she can take advantage of estate planning rules to eliminate the capital gains tax, as the farm receives a step-up in basis after the parents’ death. However, the heir may have to pay more to purchase the farm at the parents’ death instead of their retirement if the farm’s value increases during that period of time. To get around this, the parents could agree to give the farming heir a set price or pre-determined discount ahead of time, factoring in the parents’ overall estate plan. (Whether the heir buys the farm before or after the parents’ death, parents may also establish a mechanism to credit the purchasing heir with sweat equity the heir has put into the farm or any rent the heir has paid to the parents to stay on the farm.)

Parents can also split the farm up, giving individual pieces out equally or giving each heir an undivided interest in all pieces of the property. They can then give the farming heir the right to rent that property from the other heirs for his lifetime or another specific time period. With this technique, specifically stating the mechanism to establish the heir’s rental rates in estate plans is crucial. The rate, for example, could be tied to the average for the county, plus or minus a percentage. The more specific the terms, the less room for ambiguity and family arguments.

There are many more areas where succession planning can be used to protect you and your family.  Learn more about those areas in this article.

No matter the option farm families ultimately choose, it’s crucial to have a detailed, formal plan in place that outlines terms and, when possible, minimizes taxes. A estate planning professional can help with this. To find one near you, click here.