Articles Posted in Estate Planning

Estate planning for ranchers and farmers is incredibly important because of the nature of the assets in those estates. Most farmers and ranchers do not have many liquid assets, such as bank accounts and other forms of cash. Instead, most of their estate is invested in their ranch or farm and in order to perpetuate those endeavors a comprehensive estate plan is necessary. These are some of the most common estate planning mistakes of ranchers and farmers as well as how to avoid them.

Failing to Create or Update Estate Plan

Farmers and ranchers typically have more complex estate planning needs than in the typical estate planning process. In many cases, a farmer or rancher will have some children who want to continue the business and others that do not. The types of assets in a farm or ranch can also make splitting an estate much more difficult if you are trying to keep things equitable among your heirs.

The White House recently released its budget proposal for 2016, and one of the major aspects of the plan is to restrict the use and effectiveness of a common estate planning tool: grantor retained annuity trusts (GRATs). The administration has proposed limitations on the use of this estate planning technique in the past, but this is the first time that real change may be enacted in the way that people can use GRATs in their estate plan.

What is a GRAT?

A grantor retained annuity trust is an irrevocable trust that is designed to distribute assets from the trust with little to no gift tax attached. In order to properly establish a GRAT, the creator of the trust places assets into the trust that he cannot touch in exchange for receiving a small portion of those funds through annuity payments over a number of years. The distributions are kept just under the federal gift tax limit so that no federal taxes apply to the distributions.

One of the main challenges for families with wealth is planning for more than a single generation. With the uncertainty of the world, advances of technology, economic upheaval, and more many people are concerned about how to plan for decades or even a century down the line. However, there are ways to plan your estate that can provide for children, grandchildren, and subsequent generations as long as you are willing to plan with some level of flexibility.

Issues with Multigenerational Planning

“People, especially the first generation to have wealth, do have concerns about the future and they aren’t used to thinking in multigenerational terms.” Many legal and financial planners have found that it is difficult for people that have first generation wealth to think past giving to the next generation. This is because they first must adjust to managing that kind of wealth on their own before thinking about transferring it to their children, let alone passing it to subsequent generations.

Small, family-owned businesses make up the crux of our nation’s economy. In 2011, there were 28.2 million small businesses in the United States and they make up 99.7% of U.S. employer firms. Many small business owners hope to create a legacy where their family will take over operations once they decide to retire, but it does not always happen. Business succession planning is crucial to determining whether your family should inherit the business or if you should look to other options when you decide that you no longer wish to run the company.

Early Planning is Important

The earlier that you begin succession planning for the next generation, the better off your business will be. To start, have a conversation with the next generation about whether they see themselves running the business when you are gone. It can take over a year to develop a succession plan and between three to five years to implement.

Many families purchase vacation homes that they and other generations in their family can all enjoy together. However, vacation homes can also lead to some serious family feuds when it comes to estate planning. One of the biggest mistakes in estate planning when a vacation home is involved is to leave the question of ownership, sharing, and other issues without a detailed succession plan. If a plan cannot be agreed upon with you and your loved ones, you may want to consider selling the home before any fights begin.

Selling the Vacation Home

Sometimes selling the vacation home makes more sense than leaving it to loved ones. Your children or grandchildren may not be able to afford the taxes, upkeep, maintenance, and travel to the home. In addition, the recovering real estate market means that your family could make some money selling the home that could be added to their inheritance. The money from the sale of the vacation home could also go to your long-term care or that of your spouse.

A lawsuit recently filed in the U.S. District Court in the Southern District of Texas has challenged the Internal Revenue Service’s (IRS) assessment that a family owes the government millions in taxes for artwork that they claim is actually owned by a company. The estate of Joe Allbritton and his widow, Barbara Allbritton, are disputing the $40.7 million tax assessment on an alleged distribution of around $140 million worth of company-owned art to the Allbritton family.

Facts of the Case

The complaint was filed by the Allbritton family on January 30, 2015 which states that the art in question is owned by Perpetual Corporation (the Company), a corporation that is owned by the Allbritton family that held their art, real estate, and other assets on behalf of the family. The Company has been investing on behalf of the Allbritton family for over fifty years and in 1999 it was the sole owner of 26 pieces of artwork. It also owned another six pieces with a 95% interest, the other five percent belongings to Joe Allbritton.

The responsibilities of being named as the executor of an estate can be overwhelming, especially when you are still grieving over the loss of a loved one. Becoming the executor of an estate comes with a multitude of administrative tasks, and getting something wrong could make you liable for damages. One software executive saw the need for some help and has designed online tools to make the executor’s role in estate planning easier.

Role as Executor

Executors are required to perform many tasks when settling the estate of someone that they know. The executor is in charge of paying the taxes on the estate in addition to any unpaid creditors. The executor must find and document all assets of the estate as well as settling all of the deceased’s affairs. Finally, executors must distribute assets and personal items to the heirs of the estate.

The common thought when estate planning is to split the inheritance equally among your children. The main goal of the distribution is to be fair to each child, but that is not always the case. Sometimes there are special considerations that need to be made for one or more children that result in unequal distribution of the estate.

Circumstances for Unequal Distribution

Splitting an estate equally amongst your children may seem like it makes the most sense, but sometimes circumstances arise that make the situation more complicated. Like many families, oftentimes one child does better financially than the others, or one may be struggling through difficult financial times. In addition, if one of your children has special needs it will require additional planning and resources from your estate to care for them for the rest of their life.

As adult children delay marriage and elderly parents are living longer, estate planning can sometimes get lost in the shuffle. A recent survey showed that only about 55% of all parents have an estate plan or even a simple will. In addition, almost 25% of people ages 65 years and older admitted that they do not know where their parents’ estate planning documents are kept, and 44% do not know what the contents of those documents say.

Importance of an Estate Plan

Horror stories abound of adult children unable to provide for their ailing parents because they do not have the proper documentation. Despite needing to make immediate decisions, children get stuck in court and money gets tied up because there is no estate plan. Even fewer parents have health care directives and it can have an immediate effect on their wellbeing if there is a medical emergency.