A wise man, or perhaps it was a wise guy, once said, “I can tell you exactly what your estate plan should be if you can tell me: when you are going to die, what you will own at death, what it will be worth, who will survive you, which of the survivors you will want to get your property, and what the laws will be at the time of your death.”
As the news frequently reminds us, life is fleeting and full of uncertainty. That should encourage us to move forward in planning our estate based on our current situation and the information we have. Most of us will need the help of an attorney well versed in estate planning and perhaps our accountant and other financial advisers.
Daily decisions. We make decisions, with estate planning consequences, almost every day. Estate planning is simply the process of arranging for the well-being of our family and the use of our property to accomplish our objectives while we are living and after our death.
The latest round of estate tax law changes significantly reduced the number of farm families who will pay federal estate taxes. However, the biggest estate planning problems facing most farmers are non tax issues which remain.
Here are some crucial non-tax objectives faced by many farm families and some thoughts on accomplishing them.
* To provide for a young widow/widower and children.
The birth of a first child is often a stimulus to get a will and some life insurance. Life insurance proceeds and Social Security benefits for a surviving spouse and minor children are frequently the most important sources of cash when one parent dies.
At a minimum most young families need a will or trust, some term life insurance on the major breadwinner(s), and should be regularly paying into Social Security in order to qualify for its disability and death benefits. Some young farm families do not have any of the three.
To provide adequately for you and your spouse, if married, during retirement years.
Retirement planning is filled with uncertainty. At age 65 a man can expect to live 15 years or more and a woman about 19 years, but we really don’t know how long we may live or what our health may be.
This makes it extremely difficult to determine how much it will take to live in the fashion to which we are accustomed. For many farm families Social Security, farm rental and an extremely modest lifestyle are the plan for meeting retirement income needs.
If inflation rears its ugly head again, that may not provide enough income. Families with more than a few years left before retirement should consider diversifying and investing in some off-farm investments. Families in or near retirement frequently sell part of their farm real estate to generate retirement income.
Families with significant assets and income to protect, and who want to remain independent and pay for their own care, also should consider buying long-term care insurance. Families with low to moderate income and wealth frequently will not find it to their advantage to buy long-term care insurance.
* To treat all children fairly, not necessarily equally.
Even now that we are in our 50s, my parents buy my brother and me identical Christmas presents. They do the same for the grandchildren. We smile and joke about it, but it is clear our parents are treating us equally.
Fair versus equal treatment is perhaps the most difficult issue facing farm families who have several children, where only some of them will farm. Frequently it is not possible to treat all children equally and also enable one or more of them to succeed on the farm.
Many times equal treatment isn’t fair! Some children may have been given additional help in obtaining an education or purchasing a home.
On the other hand, one or more may have stayed in the business to help it succeed. An equal distribution may not be as fair as rewarding a son or daughter who has cared for the parents or worked in the family business.
Obviously the parents need to talk about it, but frequently the parents and the children need to all sit down together and discuss the appropriate disposition of the parent’s property. However, the final responsibility for making a decision rests with the parents!
* To maintain the business as an efficient and functioning unit.
This objective may be out of respect for family traditions, or may represent the best vocation for the next generation. If heirs outside the business become eligible for part of the business wealth at death, withdrawal of that capital may adversely affect the continuation of the business unless the transfer has been carefully planned.
Due to many factors many Ohio farms are no longer capable of generating a satisfactory living for a family producing the products they have always produced. It may be extremely difficult during the parent’s retirement years for the parents and the children to make the business changes necessary to best meet the family’s retirement and estate planning needs. Rather than facing the need for change, more than one set of parents has lived in poverty for years in order to pass along a farm which is not fully appreciated by the children and grandchildren.
* To provide liquidity to settle the estate.
Availability of cash at death, to meet estate settlement costs, is often overlooked. If there are sizeable debts, accounts payable, attorney fees and estate taxes, where will the executor get the money to pay them? The estate plan needs to recognize the possible needs for cash at estate settlement time and have a plan for coming up with the cash.
Assets easily converted into cash include savings accounts, stocks, bonds, grain, livestock, and life insurance proceeds. All may provide estate liquidity to meet current obligations and taxes.
But, farm real estate frequently makes up 80 to 90 percent of the estate of retired farm owners, and without careful planning the executor may be forced to sell some of the real estate or try to borrow against it. Both may work against the objectives of keeping a farm business intact and preserving certain assets for the next generation.
Most farm families have additional plans and objectives unique to their family. This brief list of objectives and suggestions is intended to help farm families consider whether their current “estate plan” addresses these issues adequately. If not, it may be time to update or replace the current estate plan.