Case #373 – The In-law

Written by Michael Baron on . Posted in Transferring Ownership, Trusts

Over the years I’ve always answered questions from readers. I thought, for a change, it would be interesting to do case studies. I’ll give you the parameters of the case I have worked on, what the farmers/ranchers did right or wrong, and what was done to correct the problem.

Case Study #373 – The In-law

Jim and Patrice had bought their family farm from Jim’s father. It had never been easy until the last ten years for Jim and Patrice to make a go of it but they paid off all their loans and retired. During their time farming, they had two sons – David and John – who had worked on the operation. John had issues with substance abuse and eventually quit the farm business. David stuck it out.

As times evolved, Jim and Patrice modified their estate plans many times – putting both boys in, later taking John out, and then setting up the estate plan so that David could see clear to buy out the other non-farming siblings of which there were four. David purchased a million dollar second-to-die policy to facilitate the purchase of the farmland from his siblings.

However, recently David and his spouse have had severe marital problems. David’s wife had decided to move to town and only visited the farm infrequently. Jim and Patrice got the feeling that she was just biding her time until they passed on and David inherited and/or bought the land. At that point, they thought it likely she would then divorce David and take half of the land.

Case Notes: Jim and Patrice had done all of the right things over the years as their farm operation changed and evolved over time. They kept up with their wills, made necessary changes, and kept on top of the situation. David had set himself up financially to buy out his siblings upon his parent’s death with the life insurance. Everything looked to transition smoothly upon Jim and Patrice’s death.

However, the hardest thing to deal with is the unpredictability of people after your death – especially with someone who has marital rights – under state law – to claim fifty percent of his or her spouse’s net worth. If that happens to be one of your children, steps can be taken.

Case Resolution: After working with Jim and Patrice and hearing all of their worries, and working with their attorney, it was decided to take the following steps:

The land would be placed into a trust upon Jim and Patrice’s second death. The trustees would be David and one of the other non-farm children.

David would pay the other children the life insurance proceeds in order to use the farmland – in trust – free of charge other than to meet the necessary costs of ownership – such as land taxes, care, upkeep and maintenance.

Everything in the estate plan would stay the way it was with the key element of David not owning the farmland outright. He and his sibling could make loans against the property in trust as trustees for improvements or further purchases of land to add to the trust.

The property would release from the trust to David only if he were divorced from his current spouse and had been that way for five years. This time period would eliminate any possibility the in-law would file for divorce, wait until David received property and then talked him into a marriage again.

David would receive income from this trust for the remainder of his life – even after he retired from farming. It was stipulated if any of his children should decide to farm they could buy the farmland from the trust at an agreed upon price by the trustees – both David and his sibling – at their discretion for whatever price they decided was fair. If no child farmed, the land would be held in trust until the grandchildren – David’s children – all reached the age of fifty and the land would be disbursed to them at that time ending the trust.

Lesson Learned?: If you don’t ‘trust’ the people who are going to own your property – or have the right to go after your property after your death – use a ‘trust’ in your estate planning to eliminate the problem.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Michael Baron is not an attorney. Information given through written, verbal, or electronic means by Michael Baron or Great Plains Diversified Services, Inc. is not to be construed as legal advice. An attorney, tax advisor, or other registered advisor is needed for the completion of the estate planning process. An attorney must be consulted for legal advice and the drafting of legal documents.