Garland Law Offices, P.A.

What Do Farmers Need to Create an Estate Plan?

“When you are a farmer, your business is not only your livelihood and your passion, but, often, it is also intermingled with your family life.”

Planning for the end of life is intimidating for everyone, but when the plan includes a family business like a farm or ranch, things can get even more challenging. That’s why estate planning, that is, planning for the distribution of assets once you die, is especially important for aging farmers. The details are in the article “How farmers can start an estate plan” from Bangor Daily News.

Death and dying are not easy to talk about, but these conversations are necessary, especially if the family wants to continue as a farming or ranching family. For aging farmers and their families, here are a few tips to demystify the planning process and help get things started.

What are your goals? Think of estate planning as succession planning. This is about making decisions about retirement and handing down a business to the next generation. If you had a regular job, you’d have far less to consider. However, succession planning for a family business owner involves more resources and more people. Having a clear set of goals, makes that transition easier. Add to that list: your fears. What don’t you want to happen? If your children don’t know how much you want them to keep the farm in the family, they may take other actions after you die. Share your goals, hopes and yes, worst case scenarios.

Build a team of professionals. The number of moving pieces in a family farm means you’re going to need a strong team. That includes an estate planning attorney who has worked with other farm families, an accountant, a financial advisor and an insurance professional. Depending on your family’s communication skills, you might even consider bringing a counselor on board.

List out your assets. Don’t assume that anyone in the family knows the value of your assets. That includes deeds to land, titles of ownership for vehicles, information about any property mortgages or loans or leases. If you are leasing land to others, you’ll need the lease agreements as well as property titles. If your lease agreements are based on a handshake, your attorney may request that you formalize them. A verbal agreement may be fine while you are living, but if you should pass and your heirs don’t have the same relationship with your tenant, there could be trouble ahead.

Consider who will be in charge when you are not there. Whether you are planning to work until you die or making a retirement plan, one of the hardest decisions will be to name a successor. Inter-generational politics can be tricky. You’ll need an unbiased evaluation of who the best candidate will be to take things on. However, going into this now is better than hoping for the best. That’s when things go south.

Talk to your estate planning attorney. Just as people should start planning for their retirement as soon as they start working, planning for the transition of the family farm is something that should start when it is years in the future, not when the transition is a few months away. It’s a process that takes a long time to do right.

Reference: Bangor Daily News (March 5, 2020) “How farmers can start an estate plan”

How Do I Include Heirlooms in My Estate Plan?

“Splitting up money is easy. Splitting up an antique car or a vacation home isn't. Unless you plan ahead by answering these three questions, your family could be in for some strife.”

With baby boomers now starting one of the largest transfers of wealth in U.S. history, many people are looking at how to facilitate the flow of their assets to their children, grandchildren and great-grandchildren. It’s pretty straightforward to pass along liquid assets like stocks, bonds and cash. However, “hard” assets like property, art, and jewelry can present some problems. Most families don’t maintain a good inventory of these assets, the value of the assets may be outdated or unknown and family members may have different ideas of how to handle them.

To make matters worse, individuals are often reticent to discuss the issue with their heirs. Because of this, hard assets can be totally overlooked, despite discussions about their potential value. Similar to liquid assets, illiquid assets must have a formal plan that starts with a dialog between the family decision-makers, estate planning attorneys and perhaps an appraiser. To get the illiquid assets distribution discussion going, consider these three key questions:

What’s it worth? Begin with its fair market value, which is the first step for any plan. That’s because it attaches an actual, current dollar figure to an item that has probably changed in value over time.

When getting an appraisal for an asset, look for an experienced, certified appraiser—especially for artwork. The reason is that there’s a big financial risk of mispricing your assets. Don’t rely on online art price guides, advice from your brother who used to be a painter, or even the original seller (who may have a conflict of interest). The appraiser should be certified by one of the main accrediting bodies, like The Appraisers Association of America or the International Society of Appraisers. For a large collection, the cost of the appraisal is well worth it, so you will know its true value and how that value will impact your estate.

Which heir(s) want it? Along with the actual monetary value, consider the emotional or sentimental value of your hard assets. Your children may have strong attachments to specific assets. This should be taken into account.

If several heirs want the same asset, look at whether and how it can be divided. If it can’t be divided equally, think about how you can equitably divide other assets. If some, but not all, of your heirs want to keep the asset, look into an equitable buyout situation that transfers ownership to the heirs who’d like to keep it.

How do I pass on? There are several ways to pass on illiquid assets. Typically, it’s best to let an heir inherit the asset itself. Illiquid assets get a step-up in cost basis that reduces or eliminates the capital gains tax, even if the heirs decide to sell it. You can also place the asset in a trust, family partnership, or LLC and formalize the transfer of ownership in a tax-efficient way, at the same time saving on future estate taxes. Finally, if you don’t think your heirs understand the asset enough to sell it for a fair price, you can sell it yourself, pay the appropriate taxes and give them the cash.

While discussions about illiquid assets can be emotional, don’t delay talking about how certain items will be passed down.

Reference: Kiplinger (November 5, 2018) “Estate Planning Answers for 'Hard' Assets Like Art, Heirlooms”

Make Your Philanthropic Efforts Count

“Over the next few decades, an estimated $30 trillion is expected to pass from baby boomers to their heirs in the biggest wealth transfer in history.”

Most family wealth is earned and lost in just three generations. One way to thwart this, is to engage the members of the younger generation in philanthropic efforts to prepare them for future financial responsibilities, while at the same time passing on your family values of charitable giving.

The Pacific Coast Business Times, in its recent article, “Involve your children in philanthropy,” notes that the best way to involve your children in philanthropic activities, is to start early. You should identify opportunities at every age to include them in your family’s giving and volunteer work.  Many younger families are already giving of their time and money, with 84% of millennials making a charitable donation and 70% volunteering their time in 2014.

Creating a more formal charitable giving plan helps emphasize the impact of giving and can create a culture of philanthropy that will carry on the family’s legacy. Start by laying the groundwork with these ideas:

Document the family’s giving history. This will lead to better engagement by the family of your philanthropic strategy and help to build interest for family causes.

Create a family mission statement. Developing family mission statements can be valuable. Work with your children to define the family’s mission and purpose for giving, and use it to outline the principles and behaviors that will guide your charitable giving now and in years to come.

Include everyone in philanthropic work. Start involving kids in volunteer work and decision making, as early as possible. Allow children to direct philanthropic funds. You can ask your kids to select a cause they’re passionate about and encourage them to research charitable organizations to develop a plan focused on how they will use donation dollars. Do research on charities and then, as a family, discuss a charity’s merits to decide whether or not to donate your funds.

There are many ways to give, from volunteering time, donating directly to a charitable organization, or using donor-advised funds. Partner with an experienced estate planning attorney to learn the benefits and limitations of each strategy. That will help you better focus your resources to drive your family’s efforts towards philanthropic causes and maximize the impact of your generosity.

Reference: Pacific Coast Business Times (September 8, 2017) “Involve your children in philanthropy”

Discussing Your Estate Plan with Your Family

“Relationships matter more than anything else”

Regardless of how we do as investors, savers, and planners, other people are nearly always impacted by our decisions and actions.

MarketWatch’s recent article, “How to talk to your family about your estate plan,” says that frequently those most affected are the ones about whom we care the most. Children, grandchildren, spouses and partners, perhaps even our own parents, all have an interest in our finances.

People are uncomfortable talking about financial matters, even with those loved ones and family members who have a legitimate right to know about it. Families will ask about what’s in a person’s will, who you want to make healthcare decisions if you’re unable, and what are your thoughts on end-of-life options and choices.

It’s hard to envision how you would actually sit down with your heirs and explain what’s contained in your will. If you have a “blended” household with multiple generations, you’ll need to attempt to peacefully negotiate the division of expenses and responsibilities.

What’s the secret to a successful family financial meeting?

Unfortunately, there are no magic answers to make this easy. However, you can move the ball by taking the time to consider what’s most important to you. Although they seem to be about money, many critical family conversations center upon about values. This makes it a bit easier, because it’s much easier to talk about “values” than to talk about money.

You’ll still need to think about the specific bequests in our wills, because you may have children and grandchildren with varying circumstances and stations in life. You also need to think about whether to make one-of-a-kind gifts to each child and grandchild, according to what you believe would be best—or try to be “fair” and give each person an equal share.

While it can be difficult, having conversations like these can be one of the best gifts you can give your family.

Reference: MarketWatch (September 9, 2017) “How to talk to your family about your estate plan”

Do-It-Yourself Wills Have Big Drawbacks

“Before crafting a last will on your own, here are some issues to keep in mind.”

Using online sites to craft estate-planning documents like wills, trusts and powers of attorney can be tempting for some who can’t or don’t care to spend the money for a qualified estate-planning attorney, or for those who need these kinds of paperwork settled quickly. However, there can be significant risks with DIY (Do-It-Yourself) estate planning, particularly if it’s a complex financial situation or the person’s situation requires legal assistance.

The Wall Street Journal reports in its recent story, “DIY Estate Planning Has Its Risks,” that DIY estate planning may work okay for those with uncomplicated estates and who don’t need any trusts or tax planning.  However, it depends on what you would call “uncomplicated.”

Those with significant and complicated assets or complex family situations (like blended families) need more-sophisticated advice from a qualified estate planning attorney than what an online site can provide. Trusts, in particular, should be left to an estate-planning attorney.

Much depends on what you’re trying to accomplish and your business and legal knowledge level. Even for an experienced businessman, although the legal terminology might not be confusing, a review by an estate planning attorney would be a good idea.

Are you comfortable knowing that you could be missing something? Many do-it-yourselfers overlook simple and seemingly small things, such as failing to designate a contingent executor or beneficiary. These things become problems, if they’re not addressed. The money you spend on an attorney is for his or her expertise and knowing that you’re not overlooking anything.

You’ve probably heard the saying, “You don’t know what you don’t know.” Unless you’re a legal professional practicing in this discipline, there will be many nuances and state-specific issues that an experienced estate-planning attorney knows that won’t be part of a generic online program. It can be hard to get comprehensive advice online and apply it to your specific circumstances, such as tax considerations and strategies to avoid probate.

A lay person is more likely than an experienced lawyer to make a mistake in drafting a will, a trust, or power of attorney form. This makes a DIY estate document more susceptible to a challenge by another party. An experienced estate planning attorney will help you navigate more-complex and nuanced issues. He or she will help you to create a comprehensive plan tailored to your needs.

A do-it-yourself will definitely isn’t for everyone.

Reference: The Wall Street Journal (August 6, 2017) “DIY Estate Planning Has Its Risks”

Look at ABLE Accounts for Those with Special Needs

“ABLE accounts allow tax-deferred saving, with contributions of $14,000 a year.”

Parents of children with special needs can anticipate a seven-figure bill to cover the cost of lifetime care. It’s not impossible to come up with that cash, if families know how to plan.

CNBC’s recent article, “It can take millions to care for your special needs child. Here's how to do it,” explains how one family needed $3 million to cover the cost of lifetime care for their 23-year-old son who has autism. The family drafted a special needs trust and funded it with life insurance to ensure that they’d provide for him after they’re gone. That's one strategy for families to help cover the cost of  supporting their kids, while preserving benefits from Supplemental Security Income (SSI) and Medicaid.

Another option is an ABLE account. It’s a tax-advantaged savings account for disabled individuals created in 2014 as part of the Achieving a Better Life Experience (ABLE) Act. A plan can include both a special needs trust and an ABLE account.

SSI and Medicaid are critical in special needs planning. However, disabled individuals are subject to "means testing" to receive those benefits. Individuals with more than $2,000 in assets and couples with more than $3,000 don't qualify for the SSI program. A special needs trust can help them work with this requirement. A third-party special needs trust or a “supplemental needs trust” is created by family members and funded with assets that aren't owned by the disabled person. This can be life insurance and other property. These assets don't belong to the beneficiary, so they can go to other family members or to charity after his or her death, instead of going toward Medicaid reimbursement.

An experienced lawyer who is knowledgeable about Special Needs planning should draft this and other related documents. You’ll also need a trustee to administer the funds and an accountant or tax attorney to file the trust's income tax return.

ABLE accounts let families save money for a beneficiary and have it grow on a tax-deferred basis. Distributions are tax-free, if they’re used for qualified disability expenses. Beneficiaries must have been diagnosed with a qualifying disability by age 26.

ABLE accounts can receive up to $14,000 a year in total annual contributions, but for the beneficiary to remain qualified for government benefits, the ABLE account's balance can’t exceed $100,000.

When the beneficiary dies, Medicaid can file a claim for repayment of benefits.  However, before that, the remaining balance of the account can be used by the estate to pay for any outstanding qualified expenses, like funeral and burial costs.

Accounts through ABLEnow (a savings plan offered in Virginia) don't have an enrollment fee and aren't subject to minimum contribution requirements. Savers with less than $10,000 in the account will have a monthly service fee of $3.25 through ABLEnow. There are asset-based fees from 0.37 to 0.40% that apply, if you choose investments.

Reference: CNBC (June 2, 2017) “It can take millions to care for your special needs child. Here's how to do it”

What If? Important Considerations for Parents

“If you have children or are planning to have children, you are probably like most people and have never written down who should be their legal guardian, in case something tragic happens to you.”

With the busy schedule of an active family, you probably never thought of what would happen to you or your kids if you became incapacitated, such as falling into a coma.

The Brooklyn Reporter recently published an article, “Top 3 estate planning tips for New Yorkers,” that asks about the passwords to your bank accounts—are they kept where someone in the family can access them, if you’re unable to communicate?

Estate planning can protect your family in the worst-case scenario, so you don’t leave your finances and your family’s well-being in doubt.

Consider these three essential tips to follow when it comes to estate planning:

1. Draft a Will. Pronto! Your last will and testament will allow you to control exactly what should be done with your assets, who should be the legal guardian of your minor children and who will be designated as the administrator of your estate to ensure that your final wishes are followed. Visit a trusts and estates attorney, not a general practitioner lawyer (one who works in several different areas of law). An experienced estate planning lawyer will understand the nuances involved with probate law. Failing to understand these issues, could mean unexpected consequences for your family after you’re gone. Talk to a lawyer whose practice area is focused on drafting wills and estate planning.
2. Sign a Living Will and Power of Attorney. A living will (also called an advance directive) will let your healthcare providers and loved ones know of your wishes, when it comes to such critical matters as resuscitation, life-prolonging measures and palliative care if you’re unable to communicate those wishes for yourself. A living will lets you make this choice, rather than burdening your family at a stressful time. A power of attorney allows you to designate someone with the responsibility of overseeing your day to day issues.
3. Speak to an Experienced Estate Planning Attorney. You don’t watch a video to fill a molar, do you? No, you speak with an individual who is professionally trained and experienced to work on your tooth. Similarly, there are no shortcuts for drafting a legally binding will. You can write a will online, but you should meet with an actual lawyer in person. Find a lawyer who knows your state laws for trusts and estates. When making end-of-life decisions, go with someone you trust. That’s not a feeling you’re going to get from a website. One visit with a lawyer in her office will save your beneficiaries and family hours of stress and conflict in a very difficult time.

Reference: Brooklyn Reporter (May 9, 2017) “Top 3 estate planning tips for New Yorkers”

Some Tips for Baby Planning

“Of course, the reward of raising kids is totally worth it, whatever it costs. Nevertheless, it’s better to be prepared than to be sorry. Here are some money saving tips that will help you save for your family’s future.”

Starting a family is exciting, but studies show that the average cost of raising a child ranges from $183,000 to $282,000. More couples are factoring finances into the decision to start a family.

One out of five parents are now delaying having another child for monetary reasons.  Therefore, it’s wise to have sound financial preparation if you want to have kids soon.

The Morning Ledger’s article, “5 Money Saving Tips for Couples Who Want Kids,” first highlights the importance of creating or updating your estate plan. Anyone over 18 should create a will as part of their estate plan. If you have a family with a baby on the way, this should be a top priority. If you’re not here to care for your baby, who will do it? Without a will, the court makes this decision.

Create a ‘Baby Budget’ Beforehand. Start living on your “baby budget” ahead of time, and calculate your change in income. You should begin living on a new budget before the baby arrives.  If you do this, you can put the extra cash that is accumulated into savings.

Purchase Adequate Life Insurance. Getting life insurance is for the benefit of your family, and provides you with peace of mind.

Save First. To be able to do the three items listed above effectively, always divide your money as soon as you get paid so you’ll have your monthly saving goals set before you run out of money. It’s also a good way to develop your budgeting and financial management skills.

Don’t Overspend. It’s tempting to splurge, but overspending is the opposite of saving. To avoid doing this, organize your shopping by having a list of the things you need to buy. Do your homework first.

Reference: Morning Ledger (November 10, 2016) “5 Money Saving Tips for Couples Who Want Kids”