Dear Michael: We’ve been farming for many years. We were talking to friends and they mentioned they have a living trust to handle their estate planning. We’ve checked into various trusts – is this the one that protects our estate from long-term care costs? – Living Trust.

Dear Living Trust: In its simplest terms, a living trust is another way for you and your husband to own property together. You have sole ownership – if one of you owns the property. You are allowed to pass your property to whomever you desire during your lifetime. However, if you are married, your spouse may have ‘spousal rights’ to the property upon your death – even if you direct it to someone else. Each state has their own laws regarding ‘spousal rights.’

You have joint tenancy with right of survivorship as another option. This type of ownership means there are two owners and the ‘survivor’ will automatically inherit the property from the first owner’s death. It doesn’t matter what your will states to the contrary, the property is now owned by the survivor. Why? Because joint tenancy WROS states there are two owners and upon death, the one who died is removed from the deed.

People use this type of ownership all the time to pass property between spouses so they don’t incur probate costs. It is, however, a terrible way to own property between non-spouses as the ‘with right of survivor’ means the property will pass to the last owner standing. I’ve come across a few cases were siblings owned property JTWROS and their shocked to find out if one of them dies, their name is just removed from the deed….and so on, and so on until the last person standing owns the property.

Next is tenants in common, and undivided half interest in the property. Undivided means you can’t draw a line down the middle of the property and claim this is your half. However, you can sell, gift or give your tenant in common interest to someone else – even upon your death – again subject to the ‘spousal rights’ in your state. Just because your spouse would automatically get her half of the tenant in common property doesn’t mean she has no right to claim on your estate.

This is the most common way for non-married people to own property. Siblings, business partners, non-related people normally have tenants in common. Now we get into trusts. Trust are either revocable or irrevocable. Revocable trusts (or living trusts) are, as the name states, revocable, changeable, and are merely another method for owning property. Irrevocable trusts cannot be changed once property is deeded to the trust without the consent of the trustee. If you make yourself the trustee, then you have a revocable trust – not an irrevocable one.

An irrevocable trust is a carefully planned ownership designation naming someone as trustee and what rights and duties this trustee will perform as long as the trust owns property. You decide what these rights and duties of the trustee are as a part of the trust. Many irrevocable trusts are found in wills when someone does not want property to go directly to heirs or beneficiaries who must meet the conditions give to the trustee before they receive the assets. Common conditions might be a certain age, a certain life milestone, or an eventual event in their beneficiary’s life. These are testamentary irrevocable trusts.

Other people set up irrevocable trusts to avoid having their assets go to long-term care. These assets must be transferred and free of any ownership rights of the grantors for at least five years before they are not included for Medicaid purposes. Revocable trusts have no protection from long-term care as you can revoke or change them. Medicaid states if you have this right, then you can revoke your trust and pay for your care.

Revocable trusts are also promoted so people tend to believe they will avoid probate, however, in of themselves, they are a tremendously difficult documents to read. Most people name their children as secondary trustees, but not many children are close to being able to handle the fiduciary responsibilities of a trust upon their death. This leads them to hiring an attorney anyway upon death negating all probate savings.

“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

Dear Michael: We went to a few meetings sponsored by our lender about estate planning. We agreed to meet with their estate planning specialist from this meeting afterwards. She recommended that we consider doing a Limited Liability Partnership. We farm together with my husband’s brother as joint tenants in the land and equipment etc. and she thought this would protect our land from long-term care costs in the future. We thought we should get your opinion on it. – LLP For Us?

Dear LLP For Us: There seems to be a growing trend of people buying in to things again because this is the only option for ‘estate planners’ to get paid. Vendors are out there selling living trusts (another form of ownership similar to joint tenancy), Limited Liability Partnerships, and Limited Liability Companies as solutions to such things as long-term care issues, ease of transfer at death, probate avoidance, etc.

If Living Trusts avoid probate, then why do they come with a Pour-Over Will that says ‘upon my death, put everything I don’t have, that I either forgot or didn’t put into my trust’s name, back into my trust.’ Such things would be things I forgot or didn’t keep up with such as motor vehicles, savings accounts, etc. If they come with a Pour-Over Will, don’t I have to go through probate to put the stuff back into my trust? If Living Trusts were perfect, then why do they need a Pour-Over Will?

Avoiding probate on the rest of my assets, right?

Okay, so at my death I name successor trustees to act as my attorney in fact or trustee for me upon my death. Typically children are named as successor trustees.

Which one of your children feels confident enough to make changes to deeds, set up estate accounts to account for any outstanding bills and income, do the income and estate tax returns, etc. all the while knowing they have a fiduciary responsibility to do this the right way. If they don’t the other heirs (other children) can sue them for making mistakes or for not getting their money they thought they had coming, or just because they want to.

Which child is going to look at this and say “I’m not dealing with all this – I’m going to hire an attorney to do all of this so I can’t get sued by my siblings” And aren’t we right back where we started, paying legal fees – aka probate costs? Where’s my savings?

Other estate vendors are saying use an LLP or LLC – it’ll solve all your problems.

An LLP in its purest sense means this: The Limited Liability typically means any liabilities incurred in the future would be limited to the assets held by the LLP or LLC. If a person gets sued, goes broke or needs long-term care, isn’t it true that only the assets of the LLP or LLC can be taken? If you put all of your land into the LLP or LLC, isn’t the only thing creditors can take is all of your land – the very thing you were told to put in there to protect it?

If you want to try and protect your land, you might think about putting your farming business into an LLP or LLC. You might start a new company that does all of the business on your farm and it might include machinery, vehicles, livestock, etc. If any of the aforementioned liability occurs from the operation of your business, I think they can only go after these assets – not the land you personally own outside the LLP or LLC.

If you’re dealing with estate knowledge purveyors who don’t know the answers to these questions, you’re perhaps dealing with someone who is selling legal documents and not solving problems for you. They may be just like the old ElectroLux salesman standing outside your door just hoping for an opportunity to dump dirt on your floor!

These are the questions I would ask before I jump into anything that sounds too good to be true. I don’t have the answers because I’m not an attorney.

“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

Dear Michael: We have one child who is farming and two others who are not. We’ve been gradually turning over rented land and machinery to our farming child while putting money in savings for our other children. We do have long-term care insurance that we bought it back in the nineties so we’re covered for long-term care. What other things should we be thinking about? – Got It Covered.

Dear Got It Covered – You’ve done a nice job on your transition with your farming child. Too many people wait and hold on to assets far too long not allowing the next generation to get a foothold in farming.

You now have to decide when you and you’re farming child switch caps – where s/he is the farming manager and you become the hired help or junior partner in the operation. For some people, this is an easy task to turn over the major decisions of the farm. For other people, control is a hard, hard thing to let go of.

Maybe it’s good to set a date, a year in the future when you decide this is the year to let this occur. Your farming child should be informed of your decision as to the date and what his or her responsibilities will be then. For example, who borrows the money to farm, what the plantings are going to be, how many head of livestock, etc. and then work towards this date together.

If it seems like your farming child is a little slow on the uptake, remember they’ve had years of practice listening to you and depending on you. But now it’s time to push them out of the nest and see if they can fly.

You also mentioned that you purchased long-term care in the nineties and that you are covered for long-term care. I’ve heard this many a time. “I’ve got long-term care insurance so we don’t need to worry about that!”

When someone says they bought insurance in the nineties, I would bet a hundred dollars that this is what you are insured for – one hundred dollars a day. Everyone bought insurance based on the costs at the time and during the eighties, people bought eighty dollar a day insurance, nineties one hundred dollar a day and in the last decade perhaps two hundred dollars per day.

To be sure you have sufficient coverage, use the average cost of care in North Dakota per North Dakotan receiving long-term care – that average being about eighty-six hundred dollars per month or just under three hundred dollars per day and just over one hundred thousand dollars per year.

If you’re insured for one hundred dollars per day, you have three thousand dollars per month. Add to this your income – Social Security, land rents, and any other income. Remember, if one of you requires care and the other doesn’t, the cost of living for the one out does not drop significantly. He or she will still need to pay for electricity, food, land taxes, etc.

Also, don’t assume Dad won’t end up needing care. With health care getting better, men are now living long enough to require care eventually. They used to only constitute twenty percent of people needing care – now they’ve jumped up to almost forty-three percent. People are just taking a lot longer to die – both male and female.

In your scenario, you’re about fifty thousand dollars per year short from hitting ‘average costs of care.’ You would then take the nest egg you’ve set aside for the other children and divide it by your annual shortage to determine how long your nest egg will last. That’s what you are truly insured for.

Of course, that does mean the kids off the farm will slowly watch their inheritance disappear if you take a long time in care status – whether that’s home care, long-term care or assisted care. That creates a big problem for your farming child someday when s/he has to explain how their inheritance got used while his is still intact – unless you didn’t have a cash sum sitting aside. Then the land would be used too!

“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

Dear Michael: We have a good family farm operation. Our son works with us and owns quite a bit of land on his own – although we still own the central properties. He should be able to buy out his siblings share. We’ve also put quite a bit aside into the stock market over the years to go to our non-farming children of which we have two. This sum has grown to a sizable amount – nothing like the farm – but a good amount. We are coming into our seventies now and wonder if the stock market is a good investment for us – and ultimately for our children. Is this a good place to get a good return? – In The Market

Dear In The Market: I can honestly answer you one thing about the stock market and it’s returns in the years to come – no one knows. That includes any expert you want to bring up from Warren Buffet to Jimmy Buffet.

Investment portfolios, over the years, were started by people who were concerned about their retirement income. It has been a good place to put money aside and ride out the ups and downs. The rate of return – for most people with good brokers – has been higher than CD rates – which isn’t saying too much lately.

I think what happens to many people as they go through their phases in life is they forget to change their investments thinking from ‘How much am I going to build up one day?’ to ‘How do I protect this and all of my other assets?’

Everyone should go through a checklist to make certain they are where they should be in their life at any given time.

For example, when I’m young and have debt, I need to check off the ‘If I die, how will this debt be paid off for my family?’

When you reach sixties and seventies, the questions you ask yourself have to shift from building an estate to protecting it. You would have an entirely different checklist to go through.

You might ask yourself ‘Does my farm produce enough income for me and my spouse that we needn’t worry about the future?’ If you can’t, you might think about the fact your lifespan is shortening each day and it might be wise to sell some of your land to your farming son to raise your level of income.

If you have sufficient income to meet your lifestyle, great. Check.

The next item on your checklist might be ‘If we die today or in the future, is their sufficient assets to provide for the non-farming children to give an equitable inheritance to them?’ If not, you and your son need to have a long conversation about what you expect from him to pay his siblings to equal out what you would consider an equitable settlement. Then, if you want to avoid future problems, bring the other children in on the conversation and tell them what you have decided. This keeps Jr. off the hook later when you die.

If you’ve got this handled, great. Check.

Last but not least is having funds like you have now. You’re worried about if they will be enough or continue to grow for your non-farming children? If I were you, I would be more worried if they are still going to be there when you die.

With life spans ever increasing, the percentage of people requiring some type of care – home care, assisted care, facility care – before their death is now up to seventy percent of all people. Many people say ‘Well, I bought nursing home insurance years ago – I’m good’ but what they bought is $100/day coverage when average costs are now at $275.00 per day and growing at 8%. This is like insuring your home for eighty thousand when it will take two hundred thousand to rebuild it. Only your home doesn’t have a seventy percent chance of burning down – but you do.

You should now start positioning your money – if you have sufficient income, got the farm transition handled with your son and other children, etc. – for maximum protection from getting old and the seventy percent chance of needing care. What good is a seven percent return on money that went to pay for long-term care?

As we go through the aging phases of life, we have to address the problems each age brings about. Too many people get stuck in the accumulation phase far too long for their age and end up losing a lot more than just their savings and investments.

“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

Dear Michael: We read with interest your column some time back about how we can use some of our retirement funds to provide for long-term care in the future, but can’t seem to find the exact article. Can you reprint or explain again how this would work? We have a significant amount in retirement funds, but really don’t need the income from it. We will likely take the Required Minimum Distributions and leave it to our non-farming kids while our son gets the farm. – IRA Confounded.

Dear Confounded: It’s a funny thing about IRA’s and other qualified money.

If you have a large amount in qualified money, typically it’s because you had a rather successful life and later on in life during retirement, you really don’t need the money because you have farm rental and other income.

For people with smaller IRA amounts, the amount isn’t large enough to change their standard of living so, they too, only take out the minimum required or RMD.

In almost all cases, over time, most people only take their RMD’s and leave the rest to their children from their IRA – the savings that was supposed to be the defining retirement tool when introduced. Not many people actually use their savings in qualified money to supplement their retirement income on an on-going basis – as was intended by Congress when first approved.

Many, many farm families, such as yourselves, want this money to go to the non-farming children in lieu of farm property to the farming child. However, even if they got every penny in your retirement account, they’d still have to pay income taxes on their inheritance whereas the farming child does not.

Second, this is money that cannot be protected by long-term care. Being as it is an ‘individual retirement account,’ if this individual requires care, these funds will be used to pay for care if there isn’t sufficient income to provide it. And, there goes the non-farming children’s inheritance. To protect it, you’d have to withdraw it, pay the taxes upon the entire amount and then gift it away.

Because of this, many people are considering how to remove income taxation and protection from long-term care for their non-farming children.

One company I am aware of allows you to transfer your qualified money – or a portion of it – to them. They will then make systematic withdrawals from your account each year for twenty years. They will also pay you interest on both the amount not withdrawn yet and the amount growing in the next account. A person would have to pay income tax on these systematic withdrawals over twenty years, but sooner or later someone is going to have to pay taxes on these funds in any case.

The company then takes these withdrawals and provides a life insurance/long-term care benefit from the payments received. As you might know, a death benefit from life insurance is not taxable to your heirs versus your qualified money. This death benefit is anywhere from one and a half times to three or four times your deposit amount– depending on age.

This contract also allows you to access your death benefit early in the event of ‘chronic health care’ issues. The contract will pay out the death benefit for chronic care issues – which typically means long-term care costs.

For example, you can put in one hundred thousand dollars of qualified money. In turn, the contract would give you, for example only, two hundred and twelve thousand dollars in death benefit. You would pay income taxes on the $5,800 annual withdrawal over twenty years each year as it is transferred.

If you needed care, you would receive two percent per month of the death benefit or $4,240 per month for care needed – long-term, home care, assisted living, adult day care, etc. If you died prior to receiving all of your death benefits early, your children would receive the death benefit less any claims paid. If no claims were paid, the children would receive the entire two hundred twelve thousand tax free – much more than the one hundred thousand taxable.

Last, but not least, you can make this a joint policy – covering both you and your spouse. Now your qualified money can do double duty. You can also add on a lifetime rider for a nominal amount stating that even if you use up all of your death benefit and are still receiving care, the contract continues to pay as long as you live.

For people with qualified money who have no intent to use this money other than to leave it to their children but don’t have long-term care covered, this may be the perfect solution.

“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

Hal and Judy Sanders came in to visit with me about their farm situation. I asked ‘How was the Fourth of July?’ and Judy stated “Well, if you wanted to see fireworks, you should have been at our house that weekend. We had all our kids home – along with our farming child – and we brought up the fact that we wanted the family farm to go to the farming son and the rest of our assets would go to the other two children.”

Hal noted, “One daughter said ‘What happens if you go into the nursing home and there is no cash when you die – no other assets left? Does that mean we lose our inheritance and Jim (the farming son) gets to keep his?’ I never expected that from her – although she’s got a husband who keeps asking questions – if you know what I mean.”

Judy said the other son thought he’d like to own some land too. “He wants to do some hunting and he’d like to keep some cows. Now everyone wants a piece of the pie. By the time we got a little into discussing all this, the fireworks were flying all right!”

I told Hal and Judy “It’s a great thing you brought this up now and got to experience what will likely be a microcosm of what will happen upon your second death. However, everyone in the family feels like they own a piece of the family farm for their own reasons, right?” They nodded in agreement.

“When a person feels like they own something and suddenly that something is lost to them, every human being goes through the same steps to deal with this loss – sadness, anger, bargaining, depression, and finally acceptance. They are still somewhere between sadness and anger. My guess is the next thing you’re going to hear is ‘bargaining’ where they come up with an ‘alternate’ plan to owning the farm assets – if you haven’t already.”

“However, if you feel like Jim needs to own the family farm in order to make a go of it in agriculture, you’re just going to have to let your other children go through these steps. Some steps they will pass through quite quickly and others may take some time. But you have set them on the path of the future and the sooner they reach acceptance, the better off everyone will be.”

“If you give in to the anger, or the sadness, and especially the bargaining – when they come up with alternatives for dividing the family farm, you’re likely going to risk the family farm and its ability to function in the future. Imagine if your son, Joey, wanted to run some cows on the family farm. Who’s going to feed them, care for them, house them, etc? Is he thinking Jim would do that for him?”

“Alternatively, if Jim and Joey can sit down and work out a plan now – even if it’s a plan that will likely never come to fruition – about how to run some cows together and who would do what in this partnership and how each of them would be paid – you can eliminate the problem with Joey. Get this agreement in writing, however, as they tend to forget the ‘details’ of the deal they made.”

“Second, sit down with your daughter and explain to her that all of the assets are at risk if either or both of you go into a nursing home. Perhaps a fair agreement would be that if this were to happen, each child would lose a proportionate amount of the assets they received in order to pay for this care.”

“For example, if Joey receives seventy-five percent of the total assets, then he should be responsible for seventy-five percent of the care costs and the other two would contribute twenty-five percent – or their share of the estate.”

We have to recognize people go through all kinds of different emotions, feelings, and sometimes these can turn into fireworks, but with a patient hand and an ability to work out compromises, anyone can make a successful farm estate plan.

“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

Kevin and Nancy had decided to return to Kevin’s family farm some twenty years ago. Five years ago, Kevin’s mother, Rona, had passed on after a long and difficult sickness. This left Kevin and Nancy to deal with Kevin’s father, Albert, the family patriarch, and still owner of the land.

Over the years and especially since Rona’s death, Kevin and Nancy have approached Albert about what his plans were for the eventual dispensation of the land. Albert had answered ‘I think I know what I want to do, but I just haven’t put this down on paper yet.’ When questioned what his thoughts were, Albert would always say ‘You’ll find out when the time is right.’

Albert’s mental health has started to decline a bit. He’s still very sharp to talk to, but Kevin and Nancy have noticed strange things about his behavior.

Kevin said “Albert tends to repeat the same stories over and over again. Every new person he meets gets the same stories verbatim. He also repeats things he’s told to us as if it were the first time. He’s gotten more reclusive and shut away from everyday activities and he seems to get more and more suspicious of the motives of people assisting him – even me!”

Over the years, I have had many people come to me who’s mental cognizance has been diminished. Some of the warning signs are repeating oneself, inability to adapt to different thinking, not making obvious choices out of fear or suspicion, etc. When this person starts to understand they cannot function in normal society and becomes reclusive or withdrawn from the world, then you know the person’s mental capacities are getting much worse.

Some of the reasons for this cognitive impairment might be Alzheimers, dementia, or – for many people – small strokes occurring.

Alzheimer’s is a fatal disease as first it attacks brain cells controlling memory and day to day function but eventually it attacks the brains cells controlling vital functions and organs – such as the heart or lungs. Dementia is a gentler form of Alzheimer’s but perhaps more devastating as it too attacks the memory of a given person but the person’s overall health is unaffected. These are people who will require long-term care for a long time.

Small strokes are characterized more by sudden changes in personality or behavior. One day, the person can pronounce a word correctly, the next day they don’t pronounce it correctly and they don’t notice the difference. Or small changes in personality such as sudden suspicions of people or inability to make small decisions – decisions they made easily not that long ago. Small strokes can cause sudden minor changes to the person and to their personality. Of course, these small strokes can and normally do lead to major disabling strokes someday.

Too many times people bring their parents in to me and say “We can’t get them to do this or that towards planning their estate” and after a short conversation with the parents, I discover one or both of them is stuck on an idea – normally an idea from the past – or they repeat themselves over and over again or cannot make the smallest of decisions. At that point, I realize what I am dealing with and I need to change my communication methods.

I need to be able to get them to talk about things and bring them to a new conclusion about what they are ‘stuck’ on in not doing their estate planning. Usually, this is done with repetitive affirmations of their goals until it’s repeated enough times the goal starts to become part of their thinking process. You have to have patience, patience, patience when reaffirming these thoughts and ideas and make certain they understand eventually this idea was their own and has now become part of their psyche.

Even so, I’ve had people who have gone far, far along in the planning process who suddenly withdraw, treat me with suspicion as if they’d never met me before even though we have had numerous meetings, and crawl into their turtle shell. For some, it’s too late.

At this point, we hope there is a power of attorney in effect and it’s time to call a family pow-wow and come up with a plan for Dad and/or Mom’s care and the distribution of the estate. As long as the whole family is involved, the POA will act in everyone’s input and best interest. The POA can make changes in ownership of the land, setting up bank accounts, etc. but does not have the power to write a will for the parents.

“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

Emil and Diana Dewald came to see me in 1998 – almost twenty years ago. Like most people, Emil and Diana had no clear plan for their family farm when they first came in other than they wanted to make certain their son, Jeff, got the opportunity to farm.

“The other children certainly helped” said Diana “But Jeff is the one who has stayed with us. His dream is to run the family farm and turn it into an organic farm as we don’t have a lot of land and that’s his best chance of profit”.

Emil said “We’d like to design something whereby if Jeff stays with us on the family farm, he would have to pay less and less to the other children for their share of the land. I think it would be fair if he got a percentage of the family farm for each year he continues to work with us!”

After much discussion with Emil, Diana and Jeff, they came to an agreement that Jeff would receive a reduced price on the farm for every year he stayed with the family farm. It was one of the first ‘years of service’ estate plans I had ever worked on and still remains a stable of what I do today. We took it to an attorney and had him draft it into a will.

Jeff came to me later and told me “Health issues have became a concern for Dad and Mom (Emil and Diana) and we need to do something more to protect the land”.

The will then morphed into a life estate deed to protect the property from possible long-term care. However, the provisions on the original will stayed with the life estate deed and all the children agreed to those provisions by signing they understood there were conditions, as per the attorney’s instructions.

Diana’s health took a sudden turn for the worst and she died leaving Emil by himself. Unbeknownst to many people was that Diana was helping Emil who had begun showing signs of dementia.

After Diana’s death, Jeff and his wife Janet and the rest of the family tried to help Emil as best as they could. For a time they were able to take care of him at home but eventually Emil needed to enter a long-term care facility.

Because Jeff had stayed on top of the ongoing process of estate planning, the long-term care costs did not cause the loss of the family farm. Jeff was constantly checking and calling to make certain things had been done right and understood the concept ‘estate planning is a journey – not a one-time thing’.

As situations changed and evolved, Jeff made certain he – and his parent’s estate plan – changed and evolved with it.

Emil lived for a few years in the long-term care facility and Jeff spent a lot of time dealing with both the facility and Medicaid to make certain Emil received the best possible care. He had both power of attorney and power of attorney for health care for both of his parents and these papers proved invaluable in the process of taking care of his parents.

Many people overlook the fact their power of attorney for financial and for health care needs to be done and updated as needed so the best possible candidates are in position to help when time comes.

Emil died and Jeff – who had always insured that he would be able to buy out his siblings – was able to do just that. His dream of turning the family farm into an organic farm has also been realized as he finally owned the land in its entirety and was able to move forward the way he had hoped.

Jeff Dewald did everything right through a very difficult time period with his parents and the farm economy. He stuck with it through more down times than up but his determination and perseverance paid off. Unfortunately, at the time he was successful in reaching his goals, God had another plan for him and I write this with a sad heart. Jeff died last week of esophageal cancer at the age of fifty-four.

“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

Bob and Beth Pettison came to me with a unique problem.

“We’ve been reading your columns on this long-term care policy with the life insurance benefit you can access for long-term care needs – if necessary. Most of what you’ve talked about is people having money in CD’s who can increase their long-term care coverage. We don’t have a lump sum of money sitting in CD’s but we do have some money in qualified acounts– IRA’s and SEP’s – that we realize we won’t need when we reach age 70. What can we do to get protection when all we have is untaxed money sitting there?” Beth asked.

In this case, if Bob and Beth took out all of their money at one time for a lump sum deposit in order to acquire supplemental or primary long-term care, they would have a huge tax bill to deal with.

However, we were able to talk to a company that specializes in qualified funds and tax-deferred funds that have untaxed interest earnings.

Bob and Beth were able to transfer their IRA’s and SEP’s to the same type of qualified plan with this company. They then set up a twenty pay option on the IRA directly into the long-term care coverage – buying them nearly the same amount as if they had put in a lump sum – or about twice the amount of money they had in their qualified accounts.

The difference in coverage was because of this. If Bob or Beth needed care prior to the twenty years being paid in, or died for that matter, the company would still have the remainder of the IRA’s and SEP’s to use for long-term care as well as the death benefits under the long-term care policy. While the IRA account was going down, the cash value was filling up on the long-term care policy.

If they went on claim, Bob and Beth could draw from both their remainder accounts with the IRA’s and also use the benefits created by the policy.

If they died, their children would receive a portion of their money from the IRA’s and pay tax upon it while the death benefit paid under the long-term care policy came to them tax-free.

Because the withdrawals were set up over a twenty-year period, Bob and Beth only had to pay income taxes on the annual withdrawals each year rather than the lump sum. As they were actively farming, they were able to mitigate these taxable withdrawals by controlling their farm income.

In their case, they were able to create long-term care benefits to supplement their inadequate coverage (they were only insured for $175/day and minimum costs are now over $200/day). They had a lump sum death benefit they could access if they needed to fill in either holes in their coverage or care costs not met by their smaller long-term care policy.

They were also able to move their funds from a taxable event for their children to a by and large non-taxable death benefit – depending on whether the twenty years had expired and the IRA’s had been exhausted. If not, then the children received the death benefit – less any long-term care costs for either Bob or Beth from the same policy.

This same method would be used for annuities with growth in them that has not been taxed. Again, the company can do withdrawals from ten to twenty years and my client only pays income tax on the interest withdrawals. Because of the annuitizing of the contract, the interest would be spread out over the years chosen by the clients.

Bob and Beth were thrilled. “We can use this retirement money for a much better purpose – to protect our farm, and to give us peace of mind if our long-term care insurance is inadequate in the future. We also have access to all of the premiums paid after ten years, so if we truly need money, we can get at it. It seems like the right solution for us.”

“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

Elmer and Gina Williams came to see me. They had a smaller farm operation, had moved off of the farm, and they had three children who had no interest in farming or ranching. They were in their mid-sixties and had a home in town, and about four hundred thousand in savings at the local bank in CD’s. Their land was valued just over one million five hundred thousand dollars. They had no long-term care insurance.

The first words out of their mouth when they came in to express their needs and goals were ‘We’d like to protect our farmland for our kids. Both of our parents received long-term care before they died and we’ve heard rumors this type of care would cost close to one hundred thousand per year’ said Gina.

Elmer said ‘We want to know if we should use an irrevocable trust or some other method of protecting our farmland. We feel like we should pay something towards our costs of care and that’s what the four hundred thousand is for, but we know from past experience this might not be enough’.

In most cases, people are curious about trusts to protect their property. Trusts fall under two basic categories – revocable and irrevocable. Revocable trusts provide no protection from Medicaid, so then irrevocable would be the next option.

For an irrevocable trust to protect property, certain conditions need to be met. One, you have to transfer the property today but it’s still subject to a five year look back by Medicaid. All transfers – no matter what you do – are. Second, the grantors – in this case Elmer and Gina – can only be income recipients of the trust. Naming themselves as trustees – although doable – is inviting disaster if they ever do anything deemed to be self-serving by Medicaid. A safer route would be to name a trustee.

The bad part about an irrevocable trust is the grantors have no say over how the property is managed and if they do, they invalidate the trust. Also, if life changes in the future, all the terms of the irrevocable trust cannot be changed.

We then discussed a life estate – which has the same protections as an irrevocable trust. The advantages – in North Dakota – are the property again is protected after five years – with the exception of the income. However, the life estate owners retained the right to income and use of the property.

“Both of our parents – his dad and my mom – needed long-term care prior to age seventy and we’re concerned we may be caught short on that five year look back by Medicaid. Do you think the money we have is sufficient?” queried Elmer.

Four hundred thousand dollars would seem like a lot of money, but with upper care costs now reaching five hundred plus per day ($180,000/year), who knows? Medical insurance used to have a one million dollar limit, then change to a two million dollar limit and now has been removed entirely because neither of these sums was sufficient as time passed.

We decided to take half of the four hundred thousand dollars and we put it into an asset based long-term care policy. This two hundred thousand dollars bought four hundred and twelve thousand dollars of either death benefit or long-term care benefit that either spouse could use during their lifetime.

Traditionally, men have short-term expensive stays in long-term care whereas women have less expensive but much longer term stays with escalating costs over the years.

The plan provides one hundred percent liquidity from year one and if they needed any of the money for income later, they could access it the same as they could with their CD’s. With the death benefit, if both of them needed care of, say, a total of $150,000 during their lifetimes, their children would still receive the $260,000 difference from the death benefit. I was also able to check with a multitude of top-rated companies to ascertain they got the best product for their money.

By rearranging ownership and their assets, Elmer and Gina were able to have a much more certain future for their children and the protection of their assets.

“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