Full Coverage or Just Liability on Your Estate Plan

Written by Michael Baron on . Posted in Farm versus Non-Farm

Dear Michael:

We have two sons – one that’s been with us for a while and one that’s just come back to the farm. In our area, land values have risen four hundred percent in the last five to seven years and, between the machinery and the land, these two boys will have to get their hands around five to six million dollars in land, machinery, inputs, etc. that we have as a part of our farm operation. We have two other children but my husband feels if the two boys take over the farm then the two non-farming children should split our savings and life insurance. This amount is nowhere near even one million dollars – maybe half of that. Do you think this is fair to the other children or am I just not seeing the business side of this? – Mom in Between

Dear Mom in Between: The son who has been on the farm contributed to the growth of the farm and the one just starting will contribute to the growth in the farm.

However, like most parents, you are in that ‘tween’ stage, where you can’t really say ‘if it weren’t for my boys, I never would have survived the 80’s’. The boys aren’t old enough to have been born in the 80’s. On the other hand, they have helped during this incredible growth spurt that’s occurred in the last decade.

There are arguments both for and against this type of estate plan.

What happens if you leave the farm to the two boys and one decides to sell out after you die and walks away with the best offer? Is there anything in place in your estate plan covering if I give your (farm child(ren) more than my other children (non-farming) how can I protect my non-farm children if my farm child becomes a ‘non-farmer’ shortly after my death? How long after I die is my farm child(ren) able to do what he wants with the property?

In most cases, people will put into their plan ‘if the farm child(ren) stay with the farm for at least ten years or to age fifty-five – whichever comes first – he is free to do what he wants with the farmland given to him. If he should sell prior to this time or age, then he shall share the proceeds of this sale with his non-farming siblings as he, too, is now non-farming.

What happens if one of the boys gets divorced or dies? Are you going to be happy if one of the daughter-in-laws then inherits the farmland from him (as next of kin with a simple will) and she then remarries to another farmer? Your non-farm children could see someone else farming their parent’s farm.

Maybe a solution would be to state in your estate plan ‘prior to any property being passed to him from my estate, he shall have a post-nuptial agreement with his spouse that this farmland – if he should die – shall pass to a trust for the eventual benefit of his children (your grandchildren) with the spouse receiving all income from the farmland – unless they should remarry. If there is a divorce action, this property is not to be considered a part of this legal action’. It sounds harsh… but you are talking about millions of dollars of property. This goes both ways – if you have a daughter or son involved in farming for the in-laws.

Last, but not least, when you state in your will the non-farming children will receive the ‘residuary cash’ of your estate, remember this – before the money gets to them, this is where the money comes from in the estate to pay for legal fees, burial costs, probate, taxes (income and estate) cost of health care (including any long-term care debts) and any and all outstanding debts.

Your non-farm children are going to be hopping mad when they see their brothers getting millions of dollars in farmland, machinery, etc. – but all the costs of the estate are being taken out of ‘their share’. You need to protect these inheritances for the non-farm heirs by setting up a proper estate plan.

Back in the 80’s, it was common for the non-farm children to receive a percentage share of what the farming child received. This was normally not a lot of money by today’s standards. However, getting fifty thousand dollars in the 80’s is like getting three to four hundred thousand dollars today.

Farmers seem to accept that machinery now costs hundreds of thousands of dollars, land costs millions, and costs and incomes are up commensurately. But for some reason, they seem to have a real difficulty using the same dollar quotient in developing an equitable plan for their children. Fuel and fertilizer could go up thousands of dollars and the average farmer would barely blink an eye.

Most farmers wouldn’t dream of buying a new truck, combine or tractor without putting full coverage on it – yet will walk around with just basic liability coverage on their entire estate plan and, essentially, ‘hope for the best’ for the future of the entire family farm worth millions and millions of dollars.

“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

Green Beans

Written by BooAdmin on . Posted in Farm versus Non-Farm

Dear Michael:
 
We have nine kids and we are working on setting up a life estate to protect the farm from if we end up in a nursing home. We have a couple of the kids who are involved in the farm, although raising nine kids didn’t leave us a lot of room for expanding our farm operation, so we don’t have all that much. The problem is the two kids who farm don’t get along and both are making rather angry statements to each other, and even to us, as to how they want to deal with these assets. My husband and I are not in good health at all, and we’ve been arguing over this for two years already. My husband and I are ready to throw up our hands in disgust and let the chips fall where they may. Do you have any suggestions? – End of Our Rope
 
Dear End of the Rope: There’s a tried and tested rule in estate planning that everyone learns sooner or later. ‘No matter how long or how many discussions you have with your children about how your estate is going to be handled upon your death(s), you are NOT going to make everyone one hundred percent happy’. 
 
As harsh as that sounds, it falls under the same category of taking the whole family out to dinner at a restaurant and letting them choose the restaurant. Guess what? You won’t get a decision by everyone that’s going to make everyone happy. 
 
In other words, it’s human nature, and fighting human nature can exhaust and paralyze the process of effective estate planning. I would guess as many as forty percent of the people out there without estate plans – wills, trusts or other up-to-date planning – don’t have this done because they try to make everyone happy. Well, that’s the ultimate ‘cut off your nose to spite your face’ action a family can take.  
 
I’ve had cases – much like yours – where the children kept right on fighting up until their parents went into the nursing home, right up until Medicaid showed up and said they are ineligible for care until they sell down their assets to nothing, and right up until the assets all gone. And they were still fighting. 
 
Sometimes, estate planning can be the ‘green beans’ of life. 
 
By that I mean, when your kids were little, if you’d let them, they’d eat nothing but candy or cereal or whatever they liked and never eat any of the things necessary to stay strong and healthy. You, being a good parent, knew that if your kids didn’t eat their ‘green beans’ or other good fruits and vegetables, your children would die of scurvy – if you let them eat only what they wanted to eat. So… you made them eat their ‘green beans’. 
 
Now, thirty years later, comes the ultimate ‘green beans’ in life you have to tell your children ‘Look, if you don’t find a way to eat your green beans, you’re not getting any dessert!’ 
 
Or, in estate planning terms you’d say ‘Look, this is the way I see how things are going to be fair and I understand you don’t necessarily agree with me. However, here are your options. You and your brother either come up with a workable solution in two week’s time… or we move on to option two, and we are going to split it up between all the kids, share and share alike. So, you two better sit down and eat your green beans right now, or there’s not going to be any dessert, got it?’. 
 
Still acting like five-year-olds two weeks later? 
 
I’d say ‘Okay, you didn’t want to eat your green beans, and now we’re going to divide the estate pie dessert with you, your brother and all of the other kids, share and share alike, so there won’t be a very big slice of pie left over for you. We gave you the chance – you said ‘no, thank you’ – so we did what good parents do – we made the decision we had to. The life estate deed is being filed this coming Friday’. 
 
Then, go on with your life knowing you’ve done the best that could be done. I bet if you look back, you’ve made hundreds – if not thousands – of these decisions with your kids from the time you became a parent – some good, some so-so but all of them still  better than making no decision. Otherwise, scurvy would be a leading killer of children in this country. 
 
“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.