When Should I Begin Estate Planning for the Farm?

When Should I Begin Estate Planning for the Farm?

Successful Farming’s recent article entitled “Is 50 Too Early For Estate Planning?” gives us some guidelines, so you can address the what-ifs as changes occur and eventually solidify everything.

Let’s look at some key guidelines:

  1. Define parameters. Regardless of what age you implement your plan, it needs definition. Outline the basics like how the rent will be calculated, how buyouts will be done, what defines a farming heir and at what ages distribution should happen.
  2. Lay out options. There needs to be “defined options.” These include:
  • Who has the option to farm?
  • Who has to option to rent or buy?
  • Are there equal options or secondary options?
  1. Consider involvement. Your plan should reward those who are involved on the farm. You might want to hold off on the actual distribution of any assets until the youngest child has reached the age of 25 or 30. This gives everyone the opportunity to be involved if they want to.
  2. Choose the right document. For example, drafting a revocable trust or planning a will allows you to make changes later in your lifetime.

With a revocable trust, its terms can be altered or canceled based on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, but when they die, the property transfers to the trust’s beneficiaries.

  1. Don’t overpromise and under-deliver. If you tell your children you’re going to do what will help them keep the farm together, be sure you do it. If you tell someone without documenting, it can lead to a major conflict later.
  2. Update your life insurance. You can also change ownership and beneficiary designations of life insurance policies.

The biggest “what if” is “what if you don’t have anything in place?”

Reference: Successful Farming (March 16, 2023) “Is 50 Too Early For Estate Planning?”

Should You Give Your Children an Inheritance Now?

Should You Give Your Children an Inheritance Now?

The first question to ask before considering making gifts to heirs is similar to the advice heard on airplanes—“Make sure to secure your own oxygen mask before helping your kids.” But, first, make sure you secure yourself, advises a recent article titled “Leaving an Inheritance? Is It Better to Give to Kids Now or Later?” from Kiplinger.

The biggest unknown is long-term care expenses. Assuming you’ve done the correct planning for this, possibly with a Medicare Asset Protection Trust or another trust, and there are enough assets for your retirement, consider the impact of an early inheritance on your children.

Money can be a lifesaver or a murky bog, depending on the amount and the recipient. Consider what your children have done in the past with finances. If they received a gift in the past, did they use it to cover expenses, invest it, or show up at the next family gathering in a flashy luxury car? Reconsider an early inheritance, if a generous gift went to a $15,000 handbag.

The beneficiary of the funds often matters more than the amount or the type of gift. This is one reason trusts are popular estate planning tools. Trusts allow you to exercise a great deal of control over how and when the beneficiary spends their new money.

You should also consider the age and stage of the child you’re considering making a gift to. Let’s say you’re 65, and your children were born when you were 30. Your life expectancy is 85. The decision is about whether or not to give the children money in the next 20 years or at the end of 20 years. In 20 years, your children will be 55 and likely in their peak earning years. Your grandchildren will be graduating from college. Your children will be in a period where the gap between their earnings and expenses is the largest—in other words; it’s not a time when they’ll necessarily need the money.

The time they may need the money more is when their children are young. Childcare costs, or having only one spouse earning income, could be when your gift is most beneficial.

Taxes need to be considered as well. Because of the current large gift tax exemption, most of us don’t have to worry about gifting unless our estate is more than $12 million. However, capital gains, and income taxes need to be considered.

Some families prefer to leave stock to their children. You’ll likely pay 15% in capital gains taxes, if you sell stock. There’s no tax if someone in the lowest two income brackets sells the stock. If you leave a stock at death in a non-retirement account, there is a step-up in basis—your child won’t pay taxes on the gains accumulated in your lifetime.

There are many different ways to approach this. However, the first step should be a talk with your estate planning attorney, who can help you determine when and how to distribute your wealth.

Reference: Kiplinger (March 7, 2023) “Leaving an Inheritance? Is It Better to Give to Kids Now or Later?”

Transferring Real Estate to Children

Transferring Real Estate to Children

Urban Turf’s recent article entitled “How Can Parents Transfer Real Estate to Their Children?” looks at some of the more common ways that parents transfer real estate to children.

Gifting. One of the easiest ways for parents to give real estate to their children is through a gift. The parents transfer ownership of the property without any exchange of money. While this does not involve any tax implications for the children, it may trigger a gift tax for the parents if the property’s value exceeds the annual gift tax exclusion limit.

Sale. In this situation, the parents sell the property to their children at a reduced price or with a low-interest rate mortgage. This can benefit both parties because the parents can receive some financial compensation, and the children can acquire the property at a lower cost.

Trusts. Parents create a trust that holds the property with the children named as beneficiaries. The trust can be structured to let the children get income from the property, or they can receive the property outright at a specified time. Trusts can also provide tax benefits for both the parents and the children.

Joint ownership. This entails the parents adding their children’s names to the property title, making them co-owners. Joint ownership can provide several benefits, like avoiding probate and creating a seamless transfer of ownership in the case of the parents’ deaths.

Life estate. In this case, the parents transfer ownership of the property to their children. However, they reserve the right to live there until their death. This lets the parents keep ownership and control of the property during their lifetime, while ensuring that the property will eventually pass to their children.

Transferring real estate to children can be complex. Therefore, it is essential to consult with an estate planning attorney when considering one of these options.

Reference: Urban Turf (March 13, 2023) “How Can Parents Transfer Real Estate to Their Children?”

Think Strategically when Creating Estate Plan

Think Strategically when Creating Estate Plan

Mindful estate planning can create tax and investment efficiencies and help ensure that your wishes are fulfilled, says a recent article titled “Estate planning basics: Tips for strategic preparation” from Atlanta Business Chronicle. Before creating a plan, it may be helpful to understand the components of a comprehensive plan, how assets can be transferred and how to get started.

Thoughtful estate planning starts with key documents. Your last will and testament provides details on wishes about property distribution and assets after death. The will creator names an executor, who oversees and manages the estate until its final distribution, including payment of any outstanding debts or taxes.

The will has no impact on insurance proceeds, retirement assets, or transfer-on-death investment accounts. A will can be amended during the creator’s lifetime and should be reviewed every three years or so to ensure that it still aligns with the testator’s wishes.

Trusts are legal entities allowing a third party—the trustee—to manage assets on behalf of beneficiaries. There are many different kinds of trusts, depending on the family’s needs. The grantor, who is the person creating the trust, can define how and when assets pass to beneficiaries. They can be revocable, meaning the grantor can amend the trust as long as they are living, or irrevocable, meaning the grantor cannot amend the trust after its creation.

A letter of intent can accompany a will and is published to the executor, trustees and beneficiaries. This provides detail from the decedent on their wishes but is not legally enforceable.

Power of Attorney is used when the person creating it is physically or mentally disabled due to illness or injury. It allows an agent to manage financial and legal affairs, can be temporary or permanent and is revoked upon the death of the principal.

Advance directives for health care provide detailed guidance to caretakers and medical professionals regarding wishes for healthcare when the person is unable to communicate their own wishes.

Transferring assets to beneficiaries occurs in several different ways, including designations, jointly held accounts and property, probate, or trusts. Beneficiary designations are typically used with life insurance policies, annuity contracts, retirement accounts and investment accounts.

Some assets are owned through Joint Tenancy With Rights Of Survivorship (JTWROS). They pass by title or registration to a surviving co-owner. This type of ownership is usually used with bank and investment accounts, real estate property, vehicles, or boats. The asset automatically transfers to the surviving owner. Be sure to avoid conflicting instructions in wills or trusts when assets are owned with JTWROS.

Probate is the method through which the estate is approved by the court and assets are distributed using the will as guidance. The court also authorizes the executor to manage the estate.

Assets held in trust are maintained by trustees who hold the assets on behalf of beneficiaries. They are passed on based on the trust agreement and don’t go through probate.

Once you have created an inventory of all assets and properties, meet with an experienced estate planning attorney to draft the documents needed to carry out the plan. The attorney will help refine goals and clarify key issues. Assets may need to be retitled and trusts may need to be funded. Executors, trustees and beneficiaries should be notified, so they understand their role in your estate plan.

Reference: Atlanta Business Chronicle (March 1, 2023) “Estate planning basics: Tips for strategic preparation”

Why Do I Need a Will?

Why Do I Need a Will?

J.P Morgan Wealth Management’s recent article entitled, “Estate planning: Why everyone should have a will,” explains that your will doesn’t just control who gets your money; it also controls when they get it and who’s in charge of the process. For those with young children, a will is also the only place where you can tell a judge who should be your children’s guardian if something happens to you and you have no spouse — or if something happens to both of you at the same time.

A will is a legal document that determines what happens to your assets and liabilities after you pass away. This includes your money, real estate, other investments, personal belongings, collectibles, autos and more.

If you have children, it permits you to designate guardians if your children are under 18.

A will can even include funeral arrangements. However, you should note that it may take time for your family to locate your will, so you may want to state the wishes for your funeral in a separate document.

Among other things, you can:

  • Determine who inherits your assets;
  • Decide under what conditions your heirs can control their inheritance;
  • Designate guardians for your minor children; and
  • Decide who will be in charge of overseeing your estate until your heirs receive their inheritance.

Estate planning is the process of preparing for what happens after you die (and potentially for any incapacity beforehand).

This entails not only drafting your will, but also how you own assets (asset titling), who can make decisions for you if you’re unable to make your own decisions, and what kind of legacy you want to leave.

This may involve the help of an experienced estate planning attorney who can help crystallize the issues you should consider and guide you to a strategy once you’re clear on your goals and objectives.

If you don’t have a will that details the distribution of your assets, state law will do this for you.

Reference: J.P Morgan Wealth Management (Jan. 27, 2023) “Estate planning: Why everyone should have a will”

What Makes Americans Worry about Estate Planning?

What Makes Americans Worry about Estate Planning?

Because of the extreme rate of inflation, which hit 6.5% in 2022, more of us are worried about estate planning than ever before, according to the annual Wills and Estate Planning Survey from Caring.com.

SI Live’s recent article entitled, “More young adults are creating wills because of COVID-19, inflation, survey says,” reports that roughly 20% of survey respondents said they believe an estate plan is now more important because they worry about how inflation will affect their heirs’ financial future. More than one in 10 said inflation changed their view on estate planning because they see their assets, such as real estate, as more valuable than in the past.

However, 9% of survey respondents said they feel inflation reduced the value of their assets, creating less of a need for estate planning; and 7% said they had to sell many of their valuable assets to keep up with the cost of inflation in their day-to-day lives.

Although 64% of Americans think having a will and an estate plan is important, only about a third (34%) of Americans have a will or an estate plan. Caring.com found younger Americans are 63% more likely to have an estate plan in 2023 than compared to 2020 – and more than a third said inflation made them realize the need for an estate plan.

Sixty-three more young adults aged 18- to 34-year-olds have estate planning documents than the same age group did in 2020, because of inflation, according to the results. This makes young adults almost as likely as middle-aged adults to have an estate plan. According to the survey, the coronavirus (COVID-19) pandemic had a significant impact on young adults wanting to create an estate plan, with the number increasing by 69% between 2020 and 2021.

Just 32% of Americans age 55+ said inflation changed their mind about estate planning. However, older adults have an overall higher rate of already having a will. The 2023 Wills and Estate Planning Survey found 3% more Americans have a will in 2023 than last year – from 33% to 34% — and 6% more Americans have a will than in 2020.

A total of 42% of Americans said they haven’t created a will because of procrastination. One in three people said they don’t have an estate plan because they don’t think they have enough wealth to leave behind when they die.

Everyone should consider estate planning. Ask an experienced estate planning attorney for assistance.

Reference: SI Live (March 3, 2023) “More young adults are creating wills because of COVID-19, inflation, survey says”

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from yahoo! Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Reference: yahoo! entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

What Should I Ask a Prospective Estate Planning Attorney?

What Should I Ask a Prospective Estate Planning Attorney?

Estate planning has many important advantages like providing for your immediate family, making certain your assets are distributed the way you want, supporting charitable causes, and more.

The Baltimore Post-Examiner’s recent article entitled “5 Questions to Ask an Estate Planning Attorney” provides some questions to help you find the right person to help you with this essential task.

  1. Do You Practice Only in Estate Planning? Specialization is critical, so find a lawyer whose practice focuses on estate planning. This person will be up to date on any law or regulation changes that impact estate planning.
  2. How Long Have You Been an Estate Planning Lawyer? It’s essential to find a lawyer specializing in estate planning. However, it’s also important to work with an experienced attorney who’s been doing this for some time. A lawyer who has practiced in the field for many years will have experience dealing with challenges to estate planning, such as will contests and disinheriting relatives.
  3. Do You Provide Periodic Reviews? Make sure you can come in and have periodic reviews to make possible changes when there are changes in your life.
  4. Are You Able to Help Me Create a Comprehensive Estate Plan? Make sure that you find an attorney who can help you develop an estate plan that include trusts, wills, powers of attorney and life insurance policies. An experienced estate planning attorney will be in the best position to assist you.
  5. What Do You Charge? Understand the pricing. Some attorneys charge a flat fee, some charge by the hour and others charge flat fees for some tasks and by the hour for other tasks. Look for an estate planning attorney who’s upfront and transparent with pricing.

Find a reputable estate planning attorney who can explain the process, help you make the right plans and then walk you through regular reviews.

Reference: Baltimore Post-Examiner (Jan. 24, 2023) “5 Questions to Ask an Estate Planning Attorney”

Do Family Secrets Hurt Estate Planning?

Do Family Secrets Hurt Estate Planning?

A study by the financial services research firm reveals just how big a problem family secrets can be, as reported in Financial Advisor’s recent article “Family Wealth Transfers Undermined by Secrecy.” Most asset holders plan to share their wishes and intentions with family members before they die. However, the research reveals only about half actually do so.

The survey looked at two demographics: affluent investors with more than $250,000 in investable assets and near affluent, investors under age 45 with earnings more than $125,000. Responses were weighted to reflect the distribution of households within these segments, which are wealthier and older than the average U.S. population.

Estate planning attorneys understand the complexity of multi-generational families and are experienced with nuances in family dynamics and the hesitancy of families to share their financial details. After a lifetime of not discussing wealth, it can be difficult to know where to begin.

When asked how well informed heirs are about their parent’s desires and plans for bequests, only 26% said their heirs were very well informed. The greater the wealth, the more likely conversations had taken place. About a third of respondents with more than $1 million in investable assets said heirs knew of their plans.

Those with less than $250,000 to pass on were not sure if heirs knew their wishes or, worse, admitted their heirs had absolutely no idea.

Although skipping generations offers tax advantages, most heirs receive inheritances directly from a parent upon their death. Having an estate plan in order, including wills and trusts agreements, ensures an orderly transfer of wealth.

A key component of successful wealth transfer is communication. However, this survey found a full 25% of respondents never intend to share information about their assets while they are living. This prevents comprehensive planning from taking place, since a number of aspects of wealth planning require active planning and other people to be involved during the parent’s lifetime.

Planning for incapacity requires the involvement of siblings, spouses, and heirs. Advanced directives, power of attorney, health care power of attorney and related documents need to be shared with family members, so they can act on the parent’s behalf. Lacking these documents creates emotional and financial burdens on loved ones.

Because healthcare costs later in life can quickly erode assets, talk with your estate planning attorney about health care and Medicaid planning for long term care to help manage expenses and preserve as much wealth as possible.

Reference: Financial Advisor (Feb. 22, 2023) “Family Wealth Transfers Undermined by Secrecy”

Probate: What Is it? How Does it Work?

Probate: What Is it? How Does it Work?

Many times, the word probate carries a negative connotation and it’s often positioned as something to avoid at all costs. According to a recent article “The Legal Corner: Pros and Cons of Probate” from The Huntsville Item, it’s important to understand the role probate plays in the estate planning and administration process. A comprehensive estate plan can minimize the probate process, and in some instances, it is a convincing reason to have a professionally created estate plan.

In cases where there is no will, the probate system ensures that all accounts and property are distributed in accordance with state law. There are potential benefits to having an estate go through probate in the administration of a decedent estate, including:

  • Probate provides a reliable procedure for the distribution of the deceased’s property in the absence of a will.
  • If a will exists, probate validates and enforces the wishes of the decedent.
  • Probate ensures that taxes and valid debts are paid, so beneficiaries are not left with an uncertain feeling regarding the decedent’s affairs.
  • If there were debts or unpaid bills, probate provides a means of limiting the amount of time creditors have to file claims, which may result in debt discharge, reduction, or other advantageous settlements.
  • It allows for third-party oversight by a court, potentially reducing family conflicts and in certain instances, encouraging family members to act properly.

There are also reasons to avoid probate. An experienced estate planning attorney can create an estate plan where wealth and property pass directly to beneficiaries, avoiding or minimizing all or part of the estate going through probate. These include:

  • Privacy is a big benefit of avoiding probate. Probate is a matter of public record, so certain documents, including personal and financial information, are accessible to the public. This is why wills should never have specific account names and numbers included.
  • Probate means that your estranged family member will be able to find out how the estate was distributed and read the will, even if you didn’t wish this to happen.
  • Probate can be costly. Probate requires court fees, attorney fees and executor fees, which are then deducted from the value of assets intended for loved ones.
  • Probate can be time-consuming, depending on where you live. In some jurisdictions, probate courts run smoothly. However, this is not always the case. If the family is depending on receiving assets quickly, for example, if funds are needed in order to maintain the decedent’s house so it can be sold, probate will require them to find other resources.

An estate planning attorney will be able to review the estate and determine which assets can be transferred to heirs through other means to avoid having the entire estate go through probate. They will also be familiar with the courts in your local jurisdiction and know how long it will take, if the estate needs to go through probate.

Reference: The Huntsville Item (Feb. 12, 2023) “The Legal Corner: Pros and Cons of Probate”