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8 Estate Planning Questions To Ask

Article-8 Estate Planning Questions To Ask

Dave Goeller, transition specialist with the department of ag economics at the University of Nebraska, has developed a list of 8 important questions to consider as you begin the estate planning process.   Find more estate planning advice from industry experts here.

Taking the time to develop estate plans for the family farm or ranch is no easy task – but it is an important one, especially if you hope to pass the family operation to the next generation.

Dave Goeller, transition specialist with the department of ag economics at the University of Nebraska, has developed a list of 8 important questions to consider as you begin this planning process. Goeller calls it “What you need to know before you go to see the attorney.”

Goeller says answering this series of questions can be very beneficial for producers as they initiate the estate planning process and seek professional assistance in putting together an official estate transfer plan.

Following are highlights of the 8 questions Goeller says farmers and ranchers need to answer. Goeller’s full paper is available through the Beginning Farmer Center on the Web hosted by Iowa State University (a link to the site can be found at the end of this article).

Question 1: What do you own? How much is it worth? and How much do you owe? Include everything that you own and all debts that are owed. Include all assets such as: bank accounts, land, machinery, livestock and retirement accounts, and all debts including loans, mortgages, credit cards, etc. This information will help your professional determine the potential for Federal and State Tax obligations that may be due upon your death.

Valuation of assets is at “fair market” value. Remember to include information about life insurance policies, who is the owner and who are the beneficiaries. Gathering information yourself can help keep professional costs at a minimum.

Question 2: How are your assets titled? How your assets are titled can be of significant importance when planning for both the minimization of tax obligations and the future income for a surviving spouse.

Joint Tenancy WROS is perhaps the most often used form of titling. WROS stands for “With Right Of Survivorship.” If title to real estate is held in joint tenancy WROS, when one owner dies, the second owner becomes sole owner of the entire property.

If title is held as Tenants in Common each owner has an undivided interest in the property. When one owner dies, his or her portion of the property passes to their heirs as directed by the decedent’s will or trust, or if someone dies without a will or trust (intestate), property passes as directed by the laws of the state. The surviving owner then owns their original undivided interest in the property with the decedent’s heirs.

Question 3: Who do you want to give your assets to? This issue often creates a dilemma that many couples spend hours discussing. No one wants to cause hard feelings or create a fight between their heirs. Emotions definitely play a large role in this decision. Should property be left undivided equally and owned by all the heirs or should an owner be chosen for each piece of property? That answer is up to each individual family.

Question 4: Do you want to have a successor for your business? If so, can the successor survive financially if they only receive a portion of the operation? If you desire a successor, is that successor one of your heirs and will he or she be treated differently from your other heirs? If the successor is not an heir do you wish to provide a mechanism for the successor to operate the business when your heirs become the eventual owners?

Question 5: Do you want to pass the farm on to the next generation as an on going business with adequate size to generate a living for the successor or do you want to divide your farming business into pieces like a pie? Is it important for you to keep the “farm in the family?” Treating all children equally may not necessarily be treating all children fairly. What about contributions to the business or sweat equity that may have occurred over the years? If you desire one successor, are there other assets for the non-farm kids such as life insurance, investments, annuities or stocks etc.?

Question 6: When do you want to give it to them? There are three basic choices: Give it to them now with “no strings” attached; Give it to them now with “strings” attached; Give it to them at the time of your death.

Also, when deciding when to give assets to heirs, consider if you will need the income those assets could earn during your lifetime or if you may want to place restrictions on their use.

The deductible basis for capital gains purposes becomes important when deciding when to give assets to heirs. If a capital asset is acquired at a time of death transfer such as a will or trust, the heir receives a step up in basis. Because the value of that asset has gone through the tax test of the decedent, the heir receives a new stepped up basis in the asset, equal to its valuation in the decedent’s estate. If that same asset were to be gifted to an heir, the heir does not get a step up in basis but continues with the same basis as the giver.

Question 7: How long do you want to exert control? There are ways to exert control beyond your death, if you wish. There may be situations in which you might wish to control a portion of your estate for a prolonged period of time. In the case of a special needs child, many will provide for the well being of the child for the remainder of the child’s life.

There may be cases in which parents wish to provide an income stream for an heir while restricting access to the entire value of an asset. Some may wish to restrict the ability to sell or mortgage an asset. Typically the longer you wish to maintain control beyond your death the more involved and expensive the estate planning process becomes.

Question 8: What about long term care? Long term care has become a concern for many farm and ranch families. There are three basic options for providing for long term care. There may be adequate income generated by the business assets to provide for long term care should the need arise. Social Security, retirement accounts, interest earnings, rent and even liquidation of some farm assets could be used to provide for long term care.

Long term care insurance has been used by many to help cover all or part of the costs. Policies vary widely. Variations include: Number of days in the nursing home before coverage begins; daily payment coverage; lifetime payment limits; and return of unused premiums.

The third option is Medicaid. Medicaid is provided for those that can not otherwise afford long term care costs. There are two eligibility tests for Medicaid. A resource test and an income test. For those who are eligible, Medicaid provides a safety net for long term care.

Goeller concludes: Know the answer to these eight questions before you see your professional to create your estate plan. Know where you are and where you want to go so your attorney can help you determine how you can best get there, and you can make the decisions that only you have the knowledge and insight to make.

Click here to read Goeller’s full paper go to: Access the Beginning Farmer Center.