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Top estate planning mistakes – Part 2

Your Farm Business

June 29, 2012
From Wayne Schoper and Rich Baumann , The Journal

From Wayne Schoper and Rich Baumann

South Central College

Two weeks ago we looked at the first six top estate planning mistakes farmers and others often make. Today we will look at the next six.

Mistake #7 Treat all kids the same

If a child or children are to take over the business, and they have been involved in the business, they probably deserve and need a larger share of the estate to help them continue to operate the business properly. If a child has received a college education, help with buying a house, etc. they may not deserve or need as much as the other children who did not receive this type of financial aid. If a child has been nothing but a problem over the years (many families have such a child) maybe they deserve to receive less or even nothing from your estate.

Mistake #8 Failure to use the annual gift tax exemption

Generally, on the federal level, taxable gifts are added back to the estate to arrive at the taxable estate. However, gifts of $13,000 or less per donor to any number of donees are not added back. Also, Minnesota has no gift tax, so it may make sense to make larger gifts to reduce or eliminate the Minnesota estate tax. The gifts must be complete, meaning the done receives all control and rights of use of the gift. If not, the gift will be included in the taxable estate. It may be a good idea to consult an attorney or good accountant when considering making considerable gifts.

Mistake #9 Retaining a life estate

This strategy accomplishes just one thing it avoids probate after death. It is used to transfer real property to the kids, while the donor retains the use of the property until death. Tax law requires full inclusion of the value of the property in the estate of the donor and may be subject to estate tax. This strategy does not avoid, or even save, estate tax.

Mistake #10 Failure to stabilize and maximize values of property

You want to stabilize the value of property in the event of the death or disability of a key person. You can do this by having life and disability insurance on any key person in the business. You can also have buy-sell agreements in place in case of the death or disability of the owner. In this process you can set the value of the property at the value you want, set the terms for the purchase of the assets, and establish the funding mechanism for the purchase. As part of this process, you should again make sure your beneficiaries are properly named in wills, trusts, retirement plans, life insurance, bank accounts, etc.

Mistake #11 Lack of adequate records

In addition to driving your executor crazy, this will probably greatly increase the cost of the administration of your estate plan. Store key documents in a safe deposit box or other place that your executor knows about and can easily access. Theses documents should include copies of your will, trusts, property titles, any contracts you have, deeds for real estate, and the prior year (or several years) income tax returns. An updated balance sheet would be very helpful for your executor to have, because it would list all your assets and liabilities. A list of all your advisors with their contact information should also be included, as well as communication of your goals for your estate, a list of assets to be used to support survivors, and any meaningful final communication to your spouse, children, other family and/or close friends.

Mistake #12 Lack of a master plan for

your estate

Many people want to "Do it themselves" when it comes to estate planning. Would you do surgery on yourself? Probably not. You should also use a team of experts to help you develop your estate plan. That team should probably include a CPA, an attorney, your banker, a life insurance professional and a financial services professional. You should also conduct an annual "fire drill" with your family and your team of experts. Discuss "what happens if . . . ?" Consider all the possible scenerios and all the potential outcomes.

Some final estate planning thoughts

* Get qualified professional assistance

* Understand what your exposure is to estate tax today, and estimate what it may be in the future

* What are your goals for succession of your business operation? Real estate?

* Review strategies to reduce potential estate tax exposure and implement if appropriate

* Monitor your plan don't assume your situation won't change in the future

* Proper estate planning is not inexpensive but the benefits will far outweigh the upfront costs

(This information is from Christopher W. Hesse, CPA with CliftonLarsonAllen)


Finally, on a personal note, this will be my last article for this column, as I have retired from South Central College after 23 years as a farm business management instructor.

I have greatly enjoyed writing this column with Wayne Schoper for the past couple of years, and have enjoyed hearing from many of you about our column. Thank you to The Journal for allowing me to do this. Wayne will continue to write and his new partner will be Tina Stadtherr, another farm business management instructor who will be working with several of the farms I have worked with.

Please give her the same support you have given me.

Rich Baumann



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