Making decisions concerning the transfer of assets in one’s estate is very difficult and can be the most procrastinated activity for all of mankind. Many do not want to talk about the inevitable nor do they want to decide who among their family, friends and favorite charities are to receive the money, property, and other assets that they own and have taken a lifetime to amass. As a result, the proverbial can is often kicked down the road in hopes that something magical will happen to resolve this difficult task. And oftentimes, the lack of planning can lead to expensive legal issues, unwanted tax implications, and sadly to ugly family disputes and feuds.
There are a number of things that are required to actually develop the plan once the estate planning process begins. The first step is communication. When a husband and wife are involved with joint tenancy ownership of assets, they must decide who gets what and how much. Without good communication, a number of issues can arise. Of course, having only one heir will drastically reduce the potential problems and discussion time, but oftentimes there is more than one. In addition to leaving part of the estate to an heir, in many cases, one or both spouses have a desire to leave part of their estate to one or more charitable organizations. Transferring ownership of assets, especially land, and possibly a few other items (such as equipment and/or livestock) to multiple heirs in undivided interests should demand considerable thought and scrutiny. Undivided interests can be used favorably in such things as mineral interest, but the chance of long-term happiness by owners of undivided interests, especially land, is typically not high.
Another level of complexity in the process arises when the patriarch says, “I do not want you to ever sell such and such asset,” with the result ending as a burden to the heir(s) instead of a blessing. It gets even more complicated when an entire business is being transferred compared with only transferring assets. So when the decisions are numerous, complex and involve multiple heirs, a high level of effective communication with all parties can increase the chances for a blessing rather than a burden. Let us say that again: Communication amongst all relevant parties cannot be stressed enough — it is important in every stage of the estate planning process.
After the owners determine who gets what assets in the estate, the next step is to choose an instrument(s) for transferring the estate’s assets to the heirs and desired charitable institutions. There are a number of instruments that can be used and each has a different level of complexity and cost. However, two of the most common instruments are wills and trusts, and each has associated trade-offs. Creating a trust, especially a complex trust, is usually more expensive because it often requires changing titles and deeds to facilitate moving the ownership of the assets to the trust. However, if these activities are not completed, the trust will provide little if any value. With trusts, more of the financial assets are paid during the planning process and less at estate settlement time.
Seek out and hire legal counsel that is knowledgeable and experienced in estate planning.
In the case of planning using only a will, it is usually more economical on the front end of the process but tends to cost more later in the process if the estate requires court action during the settlement process (probate).
Our advice is to seek out and hire legal counsel that is knowledgeable and experienced in estate planning, especially someone who has experience with agricultural estates. They will provide valuable insight into the different instruments available for transferring estate assets and will help guide you through the proper and legal use of each. They can guide you through the planning process and make sure your goals are achieved with the correct design and creation of the necessary documents. Generally, there are other documents recommended in addition to the documents related to asset transfer that would provide guidance to family members concerning late-in-life health care and legal representation.
It is noteworthy to point out that federal legislation passed by Congress in December 2017 has impacts for estate planning. The most important part of the legislation was that it increased the size of an estate not subject to federal estate taxation. The legislation basically doubled the size of an estate exempt from taxation from roughly $5.5 million to $11.4 million for 2019. The legislation also retained the portability option, which means that in the case of a husband and wife, the surviving spouse can use the unused portion of the first to add to their own $11 million exemption. Proper filing of form 706 is required for the unused portion to be available to the surviving spouse.
In 2019, each individual can gift up to $15,000 to as many different people as they desire with the gift being exempt of federal gift taxation. With the exemption amount of $22.8 million for husband and wife, one might conclude there is little need to plan since no federal estate tax will be due. We advise caution with this way of thinking because the questions of who gets what and how much still remain. It should also be noted that these increased exemption amounts expire at the end of 2025 unless Congress acts before then.
A last point we would like to make is that each of the 50 states in this country has a plan for its residents who die without having developed a plan for their estates’ assets. If an individual or a husband and wife want to make those decisions, it is imperative that they communicate their wishes, seek out and hire competent counsel, and pay to create a plan.