Kansas and Missouri Estate Planning

What are Some Common Estate Planning Mistakes for Farmers to Avoid?

Farmers are used to planning ahead.

You are a farmer.

You are accustomed to planning ahead.

You know you need to prepare for harvest before you begin planting.

Unfortunately, many farmers neglect planning when it comes to their estates.

According to a recent Ag Web article titled “5 Estate Planning Mistakes You Don’t Want To Make,” many farmers believe estate planning is unnecessary due to the high federal estate tax exemption.

The reality?

This high exemption has an end date, unless renewed or made permanent.

That current expiration date is December 31, 2025, when it will fall back down to $5.5 million for an individual and $11 million for a couple.

With a major election in 2020, this exemption could die even earlier.

Another issue is family.

With marriages, divorces, remarriages, and blended families, succession planning for your family business becomes essential.

Who will be a part of continuing your legacy and your work when you die?

You do not have to treat all your children the same.

You may have children you love the farm and will never leave.

You make have children who love city life and have their own dreams.

Talk with your children individually and together about your intentions.

Without communicating your plans and seeking their input, you could be unintentionally killing your own business.

When it comes to titling property, you cannot just leave it to be owned by your surviving spouse and your children together.

What if one of your children should get divorced?

The ex could have claims to a portion of the property.

Yikes!

Can you simply sell the farm when you retire?

Although you could do this, the income tax burden could be significant.

What if you just "copy" the estate plan your neighbor has in place?

Will this work?

Not necessarily.

Every family is different.

Every business is unique.

You need to work with an experienced estate planning attorney to ensure proper alignment of your estate plan and business success plan.

Reference: Ag Web (January 15, 2019) “5 Estate Planning Mistakes You Don’t Want To Make”

Why do Farmers Need Estate Planning?

Farming is a livelihood and a lifestyle.

As a farmer, growing things and planning ahead is important.

It is the rhythm of your life.

According to a recent Capital Press article titled “Ag Finance: Why you need to do estate planning,” this rhythm should include estate planning.

Why?

At the end of your life, probate without a plan will interfere with this rhythm of life for your loved ones.

Although an estate may need to be probated for asset distribution and creditor payments, an estate plan will make it simpler.

How so?

Dying intestate can be expensive.

It will cost you more in legal fees and, perhaps, even avoidable taxes.

The fix?

Create an estate plan.

This will help your adult children and executors handle your affairs after your passing.

Do you have minor children or children with special needs?

If yes, you should work with an experienced estate planning to include special protections for them.

An inheritance trust can be beneficial.

Your money and assets will transfer to your beneficiaries when they are mature enough to manage them well.

A trust can also help you manage your farm during your lifetime while providing guidance for your beneficiaries.

They can provide an extra safeguard should you become incapacitated.

It may also help decrease capital gains taxes.

A living trust can be a good probate avoidance option you can amend and even revoke during your lifetime.

Take steps now to protect your farm and your family from the issues incapacity and death present.

Reference: Capital Press (December 20, 2018) “Ag Finance: Why you need to do estate planning”

Do I Handle My Livestock in My Estate Plan?

You should consider your livestock as assets in estate planning.

Are you a rancher?

If yes, you are no stranger to preparedness.

When working the land and livestock, you must think through potential issues well before they happen.

According to a recent Beef Magazine article titled, “Are your livestock covered in your estate plan?,” estate planning is essential to being prepared.

How should you plan if you are a rancher?

You need to know what you have.

Take inventory of your house, your land, and your money.

Do not end there.

You need to also consider your equipment, personal items, vehicles, and livestock.

And valuing your livestock will be important.

Your heirs may not know how much your purebred herd sire cost, let alone the value of semen in the tank.

To combat this you should keep an itemized list with associated dollar values.

You may also consider a livestock trust.

Why?

You can give specific instructions regarding what should be done with the livestock and the resources to care for them.

You should also include the vet and nutritionist contact information for the cattle.

Remember to designate reliable individuals to feed and care for the animals, too.

If you plan to sell after you die, you should hire someone with experience to oversee this.

Your heirs may be those you select.

On the other hand, your heirs may not want anything to do with the ranch.

You need to make preparations now—while you are alive.

Work with an experienced estate planning attorney to ensure your livestock and your loves ones are protected.

Reference: Beef Magazine (December 14, 2018) “Are your livestock covered in your estate plan?”

What Role does Life Insurance Play in My Estate Plan?

Life insurance can help solve several problems.

You have heard life insurance is important.

You do not understand why.

What is the point of money being paid out from an insurance policy when you die?

According to a recent Successful Farming article titled “Using Life Insurance in Estate Planning,” life insurance is not to help you but to help those you leave behind.

The article points out the value of life insurance, specifically to farming families.

What are these benefits?

The money used can help transition the family farm from one generation to the next.

It can provide funds exempt from the estate tax and can be used by some siblings to purchase part of the farm estate from siblings who want to get out of the family business.

What if you are not a farmer?

Are there other purposes to life insurance?

Yes.

Life insurance can help pay estate taxes.

Life insurance can help pay off your creditors.

Life insurance can fund your funeral.

Life insurance can provide an inheritance to heirs.

Remember, there are two basic types of life insurance.

What are they?

The first is term life insurance.

This covers the risk of death.

As a result, the amount paid in premiums will increase as the covered individual ages.

The second is whole or universal life insurance.

This includes a savings component.

What does this mean?

The policy can accumulate tax-advantaged cash value over time.

In turn, this cash value can be borrowed against to pay for nursing home or retirement costs.

If you borrow against the policy, the proceeds available to your heirs will be reduced.

Life insurance can be a wonderful estate planning tool if properly in aligned with your goals.

Work with an experienced insurance professional to create an life insurance plan to meet your needs.

Reference: Successful Farming (October 5, 2018) “Using Life Insurance in Estate Planning”

How Could New Legislation help Farming Families?

Estate planning for a family farm is no small task.

Are you a farmer?

Has your land been in your family for generations?

Chances are you have experienced good and hard times.

Are you concerned about what will happen to your family farm when you die?

According to a recent article in Farm Bureau titled “Estate Tax Repeal Bills Would Help Family Farmers,” the government may be making the transfer of your farm to family easier.

Why is this important?

Farmers are less likely to invest in life insurance and estate planning.

The focus is rather on the business purchases, upgrades and expansion.

The farm is all they have.

Historically, estate taxes have been a significant issue for family farms.

When the owner dies, many have had to sell in order to pay this tax.

Why?

Farms are illiquid assets.

Farmers tend to be cash poor, but land and equipment rich.

To pay estate taxes greater than the cash on hand or their liquid assets, families must sell land or equipment to pay the tax.

Selling land and equipment significantly hurts business.

What is the law and how can it help?

The introduced law is the Death Tax Repeal Act of 2017 (H.R. 631 and S. 205).

It has been designed to help protect family farms and help American agriculture as a result.

Click over and read more about it in the original article.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Farm Bureau (January 26, 2017) “Estate Tax Repeal Bills Would Help Family Farmers”

How do I Preserve My Family Farm or Ranch for My Children?

For starters, I commend you for asking the question.

That is the first step.

However, procrastination is the death bed of good intentions.

I get it. 

Who likes to talk about death?

Aside from morticians, even thinking about death makes most folks uneasy.

This includes farmers and ranchers, who really need to think about the future of their businesses and the livelihoods of their survivors.

It is about the land.

This was the focus of a recent AgriNews article titled "Estate planning can lessen grief for survivors."

While you will want to click over to the article yourself, it reinforces that land is the heart and soul of any family farming and ranching business.

Estate planning is about protecting that land.

And your family.

Let me guess - you want to preserve family and business relationships, avoid giving any more to the government than necessary, and provide peace of mind for both you and future generations, right?

One "yuge" challenge is how to handle children who are active in the farming and ranching operations ... and those who are not.

Communication is key, as with all estate planning.

I recommend that you think through the ultimate outcomes you want to achieve and make sure you have "spousal alignment" with these objectives.

Then, get together with your estate planning attorney to help you understand the legal requirements to make them happen.

While you are at it, discuss including "remarriage protection" provisions in your estate plan to avoid losing the entire estate to a "next spouse" (and his or her children) if one of you dies and the surviving spouse remarries. 

Once you get your estate plan nearing the signing stage, communicate your objectives with your children.

Why?

Better to "have it out now," rather than later!

Family feuds, and the attorneys involved, can be expensive.

Work with an estate planning attorney to make sure you protect your land and do what you believe is right and fair for your children.

Make sure any attorney you select is well-versed in current estate laws and farm business operations in the state.

In all things, measure twice and cut once.

Your local county extension agent likely has a short list of such attorneys if you need a referral. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: AgriNews (December 31, 2015) "Estate planning can lessen grief for survivors"

Estate Planning for My Family Farm? Where do I Start?

I have posted before on family farm succession. With all of the landowning farmers reaching (or well into) their retirement years, it is a subject worth revisiting.

Early and often.

Here is some food for thought: the majority of farmers are over age 55, and if you can believe it, 80% of them do not have a plan.

Recently, AgriNews published an article titled “Do’s and don’ts of farm succession planning.”

The article has some salient advice to ensure a smooth transition of your farm to the next generation or a new owner.

While you will want to read the original article, here is a summary to get you started: 

Plan now!

Planning is the key ingredient to successful farm succession.

Yes, you need trusts and wills, but transferring an agricultural business operation requires even more planning.

Hire the right people in the right positions.

Like any closely held or small business, the fact that you are related to someone by blood (or marriage) does not necessarily mean they should be working on your farm.

[I can see your heads nodding in agreement on that one!]

“There is no birthright in farming,” according to the article.

You may have some good workers who are also members of your family, but all of your farmhands should be vetted and hired correctly. 

Avoid procrastination.

Unfortunately, some farmers pass at an early age and have no plan in place.

Result? Major problems for family members.  

Hope is not a strategy.

Communicate.

Do you want the farm to continue? Be honest.

If yes, then communicate your expectations so that the plan is clearly known.

Families need to have a legal estate and management transfer plan or a buy or sell agreement prepared. All of the concerned parties need to discuss details that go beyond the trust and will. 

Is there enough money?

Farmers and rancher tend to be rich in stuff and low on cash. It has been that way since dirt was invented.

No, it is not like you need to have a super-prosperous farm ready for someone to take over.

On the other hand, the article suggests that the younger generation be prepared with a business plan detailing how they will be adding value if they join the farm. 

Get it in writing.

Remember that a conversation or phone call is not a binding legal contract.

Work with your estate planning attorney. He or she will make sure that everything is legal and above board. I also find farm extension agents bring a lot of experience and wisdom to the table, too.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: AgriNews (September 17, 2015) “Do’s and don’ts of farm succession planning”

The Farmers and the Ranchers Should be Friends (and Plan for Retirement)

Tax day came and went yesterday. Woo-hoo! Oh, unless you are on extension, that is. Regardless, now is the time to make plans for next year. If you are a farmer or a rancher, then that mean looking into retirement saving solutions.

Why?

Well, it seems that regardless of your "form of ownership," you may be considered a business eligible to establish a retirement plan.

No, really.

A recent article in The (Great Falls MT) Prairie Star,, titled “Review estate, tax and retirement planning issues now,” notes that a farm or ranch operation should include retirement savings for the owner and/or employees as a part of annual budgeting.

These retirement funds provide tax savings now and may provide liquidity and income when the decisions for retirement and/or farm transition take place.

Two options are discussed are SEPs and IRAs. Contributions to these plans will provide tax savings for the taxpayer every year they are made and both have flexibility. In other words, annual contributions are not mandatory.  

Some background:

Small businesses, including self-employed taxpayers, have two choices after the end of the year to establish and contribute to a retirement plan.

These two choices are the Simplified Employee Pension (SEP) plan and the individual retirement arrangement (IRA).

A taxpayer has until the due date of the business federal tax return (including extensions) to set up and fund a SEP. On the other hand, IRAs cannot be funded after the due date of the taxpayer’s personal federal income tax return. 

The SEP allows self-employed individuals to contribute and deduct 20% of the net income up to a max of $52,000 for 2014 ($53,000 for 2015).

If the owner is contributing for an employee, the percentage is maxed out at 25% of the employee’s gross income—up to $52,000 in 2014 and $53,000 in 2015.

IRA contributions are the lesser of $5,500 or 100% of earned income for 2014 (the same in 2015). IRAs also have a “catch up” provision for individuals age 50 or older to contribute an extra $1,000 each year for 2014 and 2015.

The original article recommends that before you contribute to a traditional IRA, you should see if those contributions are deductible. If not, you might look at a Roth IRA. 

Although the required minimum distribution (RMD) rules apply to both SEPs and IRAs after taxpayers reach age 70½, the SEP permits contributions to continue as long as the taxpayer has income.

As far as the traditional IRA, contributions cannot be made after age 70½, regardless of income.

As you can see, each of these retirement alternatives offers both advantages and disadvantages to a taxpayer. Since each has some unique conditions and regulations, so it is essential that you work with an experienced estate planning attorney to explore your options.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website. 

Reference: The (Great Falls MT) Prairie Star (April 1, 2015) “Review estate, tax and retirement planning issues now”