Submitted by: Betsy Whitlatch
New Albin Savings Bank
Doing your estate plan is an easy task to avoid. Nobody wants to talk about death or taxes. But an estate plan is an extremely important thing for most people to complete.
A well-thought out and comprehensive estate plan is especially important for many farmers for a variety of reasons. Below is an overview of why you may want to either start or revisit your estate plan.
First, it’s important to understand what an estate plan is. Your estate plan consists of more than just a will. A proper estate plan includes planning for both your incapacity and your death.
For incapacity planning, you should make a power of attorney for financial matters, which appoints an individual to manage your financial assets on your behalf in the event you are not able to.
In addition, you should make a power of attorney for health care or a health care directive, where you nominate someone to make your health care decisions when you cannot.
These documents may seem simple, but it is important to be aware of the power that each one gives to your agent.
In addition, you have the ability to personalize your health care directive and provide guidance to your agent about your wishes for medical intervention.
An estate plan also directs how your assets pass to your beneficiaries at your death. The best way to begin forming the plan for your assets is to identify your goals.
What do you want to ensure happens with your assets after your death? What are you most concerned about? Who do you trust to ensure that your goals are accomplished?
Some farmers want to guarantee that their farming child can continue to farm, but cannot do so without leaving assets very unevenly to their other children.
Other farmers do not have any farming children, but still want the land to stay in the family and be owned by the children together.
Still others may think they can avoid conflict by pushing the personal representative to liquidate the assets so that all children simply receive cash.
Maybe one child has creditor issues and you want to protect that person’s inheritance from those creditors. Each person’s situation is unique and your estate plan should reflect that.
It is always important to communicate your goals and your concerns for your estate plan with your attorney.
Your attorney does not have the ability to provide the right solutions unless you explain your situation in detail.
For example, if one concern of yours is protecting the privacy of your financial information following your death, your attorney will likely recommend that you use a revocable trust as your main planning document rather than a will.
A revocable trust does not need to be probated in court, so using a trust prevents an inventory of your assets from becoming public record.
There are a variety of tools available to attorneys, ranging from LLCs to irrevocable trusts to the standard will. There is no “one size fits all” solution in estate planning and each individual’s plan deserves attention and detail.
In addition, you may have questions or concerns about taxes at your death. The federal estate tax exemption has changed frequently in recent years but has generally been at $5 million or above.
Currently, the federal estate tax exemption is $11.58 million per person, so if you are married your combined federal exemption is $23.16 million, meaning you can pass that value in assets to your beneficiaries with no estate tax.
We live in an interesting part of the country with three states that have very different estate tax laws.
Minnesota has a lower estate tax exemption at $3 million, but the Minnesota exemption can be effectively increased to $5 million for owners of “qualified farm property.”
Iowa does not have an estate tax, but does have an inheritance tax, meaning that the category of the recipient of your property affects the amount (if any) of tax that is due.
Wisconsin does not have an estate tax, but is a community property state. If you live in Wisconsin or own property in Wisconsin it is important to understand how the state’s community property laws may affect you and your assets.
With the heightened estate tax exemptions, income tax planning has become more important. Most property that is passed to your beneficiaries through your estate gets a stepped-up basis for income tax purposes.
Property that is transferred by gift gets a transferred basis, meaning the recipient gets the same basis that you had in the property.
In the past, gifting may have been the best plan for your assets, but that may have changed with the recent increases to the estate tax exemptions.
You should consider whether your current plan still works with the updates in laws and changes in your family.
So, I offer you a challenge: if you completed your estate plan three years ago or more, take out that will or trust, brush the dust off, and read it.
Read it carefully and ask yourself if it accomplishes your goals and addresses your concerns. If you don’t understand it or it doesn’t say what you want it to say, then talk to your attorney.
Your estate plan is a part of your legacy and you want to be sure that it accomplishes exactly what you want and expect.
I had planned to give a presentation entitled Estate Planning for Farmers later this month, but due to the current health concerns and social distancing protocols, we have decided to postpone. We anticipate rescheduling later this summer.
Contact me at email@example.com or 563-544-4214 with questions.
Betsy Whitlatch practiced Estate Planning and Estate Administration Law in St. Cloud, Minnesota for five years before moving to New Albin, Iowa to work at New Albin Savings Bank where she is a Financial Officer, Trust Officer, and In-House Counsel. She no longer does private practice of law, but still enjoys helping people work through their estate plans through estate plan consulting.