Wanda and Bill had recently retired. They have in excess of four million dollars in real property and close to six hundred thousand dollars in savings. They also owned a home in Arizona that’s been appreciating lately as the real estate values rise. Their desire was for their home in Arizona to go to their daughter and most of the savings. Meanwhile their son would get a jump start on owning a portion of the land to start farming. They reached an impasse when land values recently rose and now see their shares as less than equitable for their daughter. They also want to protect the farm from long-term care issues but don’t want to spend annual premiums on an insurance policy.
Issues: Wanda and Bill had accumulated a considerable amount of savings but the problem is when protecting land, you expose the savings even more to possible long-term care needs and costs.
Wanda and Bill should purchase long-term care insurance, but didn’t like the idea of the premiums going out each and every year without any return on the premiums paid. I reminded them this is, in fact, how almost all insurance works – home insurance, farm insurance, car insurance, etc. Normally, if you have no claims – no car accidents, no homes burnt down, etc, you’re not going to get your money back.
Bill and Wanda’s money was currently sitting in CD’s at the bank and had dropped to under one-half of one percent on their earnings.
I asked them if the bank, in lieu of giving them interest, would provide them with three and a half times the deposit they made in the bank for long-term care insurance, would they be interested. In other words, if they put two hundred thousand dollars aside into another CD, the bank would pay up to seven hundred thousand towards any long-term care costs?
If they die without needing care, then the bank would pay their daughter their savings – plus interest of higher than .04%.
So, in essence, would you rather have long-term care insurance of up to three and a half times their deposit or would they rather receive the measly interest of .04% or $400/year?
When they understood their money would be as liquid after two years as it was in CD’s, and they were guaranteed to receive their money back – either paid out to them in whole after two years, paid out to their daughter as a death benefit higher than interest would have been, or paid out in long-term care benefits but now at a three dollar to one, their ears perked up.
If Wanda and Bill eventually had long-term care costs, these costs would have come out of the couple’s savings in any case. CD’s in estates are just self-funded long-term care plans, in essence, if care is needed. The fact they get a three to one return on their money gave their daughter a much more protection of retaining most or all of the savings.
When I look at estates and I have two different types of heirs to deal with. I have to make certain the parents think not only of protecting the land – which I agree is the golden goose – but the other assets as well. If they don’t and they have health problems, the non-farm heirs are the first to lose their inheritance. I agree there should be an equitable settlement for non-farm heirs but then the settlement agreed upon should be protected with equal vim and vigor as the farmland. Too often people focus on the land only. However, non-farm assets also have value and it would be silly to pass up a simple solution – especially when it involves protecting one heir’s inheritance to offset a much larger share.
The second item was the home in Arizona. Right now, droves of people are heading south for the winter to their second homes down there. Because most of these homes were bought without much forethought, and the homes were placed in the names of the buyers (Dad and Mom), the homes will go through probate in Arizona.
In Arizona, much like California, Florida or other winter haven states for snow birds, probate is really expensive. It’s possible the home in Arizona would take longer and cost more than probating the entire farm in North Dakota. Each state would have to open probate involving two different courts, two different legal representatives, etc. Arizona has much, much higher fees for probate than we have here.
Two solutions – one you can use an irrevocable living trust, which is a lengthy costly document to write and to administer if it’s just to avoid probate.
Two, you can do a TODD – a transfer on death deed – for your home in Arizona. The TODD deed is akin to POD’s – payment on death – for checking and savings accounts. If you have a POD designation on your accounts, all savings and checking go directly to named beneficiaries upon your death without being included in probate.
The same would be true of the TODD for the home in Arizona – or for the farmland here in North Dakota, for that matter. TODD’s are allowed in both states and in about seven others.
Under a TODD, the home or land goes directly to the beneficiary(s) named on the deed without going through probate. The values for the property are still included for estate tax purposes, but you still retain the right to sell, change or handle your property in any manner you choose prior to your death – unlike life estates or irrevocable trusts.
A TODD does not protect against long-term care costs however. I’ve seen conditional TODD’s, to paraphrase, such as “This land shall pass to my farming son, Bill, based on the fact Tiffany shall receive five hundred thousand dollars within one year of my death either from my estate, or as a beneficiary of any of my assets, or any and all shortages will be paid by Bill. If not, Bill shall forfeit half interest in said land to Tiffany’. Bill, the farming son, likely would have to sign to agree to these terms to make all of this verbiage a two-party agreement.
As your heading out for your winter homes, contact an attorney licensed in the state where your homes are located and ask him about putting together a TODD for the property there. It’s a cheap and inexpensive way to avoid probate in another state and mounds of headaches for your children.
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Toll Free: 1-800-373-4078