Estate Planning Tools & Strategies

“One size fits all” estate plans do not exist. Every family and every farm is different. An array of tools and strategies exist to craft an estate plan. These tools are used to address the following issues in estate planning:

  • Minimize Tax
    • Federal estate, gift & generation-skipping taxes
    • Unified credit
    • Marital deduction
  • Avoid Probate
    • Wills vs. living trusts, joint tenancy, transfer-on-death deeds
    • Basis Adjustment
  • Long Term Care
  • Contests
  • Succession of Farm Management

The following are some of the tools and strategies available to the farmer/rancher to address these issues.

  • Living Trusts. Revocable or living trusts are almost a necessity in a complex estate plan. They are very flexible and provide you with maximum control of your property during your life and after death.
  • Irrevocable Trusts. Irrevocable trusts cannot be revoked after they have been made. This feature is useful in some areas of minimizing estate taxes and asset protection.
  • Life Insurance Trusts. Life insurance trusts can be used to purchase life insurance to be used in providing cash to the estate for use in paying bills and settling the estate. When properly structured, the life insurance proceeds will be free of estate taxes.
  • Generation Skipping Trusts.  If property is gifted to a skip-person, eg. a grandchild, a generation skipping tax (GST) is assessed on the gift. The rational of the government is to prevent skipping a generation thereby avoiding the estate/gift tax on the transfer from the child to the grandchild. Generation Skipping Trusts are used to maximize the GST credits and minimize the total estate/gift taxes due on multi-generational transfers.
  • Wills. Wills are a necessity, even if you have a trust. There are many issues that can arise that are handled only by a will. For instance, forgetting to put property into your trust, inheriting property after you created your trust, handling certain lawsuits after death, and nominating a guardian for a minor child.
  • Joint Tenancy.  Holding property in joint tenancy with the right of survivorship only works for simple, non-taxable estates. It usually is a bad idea to hold property in joint tenancy with a child. Many unintended consequences can occur. Transfer-on-death deeds are a better alternative.
  • Life Estates. A life estate is created when property is conveyed in a deed or devised by a will to a person for their life and then after death to others. If you want this type of arrangement, it is better to use a trust to accomplish your goals. Life estates can create conflicts between the life estate owner and the remaindermen over such things as who pays for repairs, etc. It is better to put the property under the control of a trustee.
  • Transfer-on-Death Deeds.  TODs can be very useful in very simple estates. They transfer property on the death of the owner easily and inexpensively.
  • Durable Powers of Attorney. Durable Powers of Attorney (DPA) are a necessary estate planning document. A DPA gives someone else the power to conduct your business if you are unable to do it yourself. The main benefit is avoid the need for a court-supervised (and expensive) guardianship and/or conservatorship.
  • Lifetime Gifts. You can reduce your estate by making outright gifts during your lifetime. A person can give up to $13,000 (as of 2011) to another person tax free. Lifetime gifting can be a powerful wealth transfer tool, but also has pitfalls for the unwary.
  • Charitable Trusts.  Charitable trusts can reduce the amount of estate and/or income tax owed while providing income for you or your heirs.
  • Business Structures. The farm/ranch can be operated as a partnership, limited liability partnership, corporation or limited liability company. The land could be transferred to the business entity and then shares of the entity would be transferred to the heirs.
  • Long Term Care Insurance.  Long term care insurance protects the assets of the farm from being sold to pay for the long term care of the owners.