Texas Estate Planning

What Are the Minimum Legal Documents a Farmer or Family Business Owner Must Have?

There are five fundamental estate planning documents that every farmer, family business owner, or every adult, should have prepared and properly executed. They are clearly outlined in the article “Five documents every farmer should have” from Ag Week. However, as reported as recently as January 2019 from AARP, six of 10 seniors don’t have a will. The number of farmers who lack an estate plan is fewer, and probably even less have advance care directives. This is not good for them or their families.

Farm and ranch families often find themselves facing complicated issues about how the land should be divided among the next generation, and whether the next generation will continue to maintain the ranch or farm. This is something that estate planning addresses.

Many people think of the will as the estate plan. However, it is only part of the plan. The will says who will inherit property, including assets and debts, and who will be responsible for carrying out your directions. That person is the executor, who acts as your agent when you have died.

While there are online wills available, it is recommended that farm and ranch families work with an estate planning attorney. They are encouraged to meet with a few, until they find one who they are comfortable with and they believe has the experience that suits the family’s situation. The attorney will help with how property is titled and how to handle the tax implications. These are both important parts of an estate plan.

Every adult needs an advance health care directive, the legal document that specifies the medical procedures that they want to maintain life, if there is a health crisis. An advance directive usually involves a living will, and names a person as health care power of attorney to make health care decisions, when you are unable to do so for yourself.

The living will is used to specify the types of medical procedures you do or do not wish to have performed to keep you alive. Medical professionals or first responders often do not have access to this document and must follow their legal and ethical requirement to maintain life, in any way possible. Make sure this document is readily available and that other family members know where it is located.

Provide a copy of the living will and durable power of attorney to your doctors and the institutions that usually provide your care. The power of attorney should specify who has primary responsibility to make these decisions and at least one alternate.

Talk with your physicians about your feelings and wishes for these documents. They may also benefit from having the person you have named as your power of attorney with you at the time of the conversation. That way everyone is clear about what your wishes are.

A power of attorney is given to an individual, your agent, who can make financial decisions on your behalf, if you are incapacitated. They can write checks, make deposits and have access to your safe deposit box. There will be forms to fill out, so don’t delay having them created and properly executed.

While it is not legally enforceable, write a letter of intention to accompany your will. Give a copy of your letter to your executor, and possibly to a trusted family member. This way, you can make sure they know:

• Where important documents, including life insurance policies, savings accounts, loans, leases, titles to property and other legal documents are located.
• Instructions for the care of minor children. Your will should name a guardian, but any information you can share about your children will be helpful.
• Instructions of what you want to happen to the family land.

The more information you can prepare and provide for your survivors, the more likely your wishes will be carried out. It can also be psychologically soothing to know that you have communicated and legally documented your wishes for those who live after you.

Reference: Ag Week (April 5, 2019) “Five documents every farmer should have”

Splitting a Farm to Keep It in the Family

Farmers with multiple children have two seemingly conflicting goals when they plan their estates. They normally want to preserve the family farm in one piece if possible and make sure that all of their children get a roughly equal inheritance. 

These goals can be difficult to accomplish because the overwhelming largest portion of the estate is often tied up in farm assets, such as land and equipment. 

This can be even more difficult when one child is currently participating in the farm operations and another child is expected to join later. 

Recently, Delta Farm Press discussed one possible solution to the problem in "2 separate entities enhance farm succession plan."

The idea is to split the farm into two separate corporate entities. One entity holds title to the land while the other entity owns the farm equipment and operates the farm. The second entity leases the land from the first entity. 

Buy/sell agreements are put in place as a way to make sure that the entities remain in the family. 

An estate plan then gives the children shares of these corporate entities instead of the physical property. A child who wants to continue farming would then have the option of purchasing the shares of a child who is not interested in being a farmer.

Many other solutions to keep a family farm in the family are also possible. 

Estate planning attorneys can offer advice to provide the best solution for your family.

Reference: Delta Farm Press (March 6, 2016) "2 separate entities enhance farm succession plan."

 

The Moon and the Estate Tax

Bill Maher is a well-known liberal pundit who is often at the center of controversy over his statements. Consequently, it should come as no surprise that he recently addressed the estate tax. 

Maher took on the claim that the estate tax hurts small farmers. 

Maher declared that more Americans have walked on the moon than farmers who have paid the estate tax in 2013. 

Is this just hyperbole or is in fact?

According to a recent article in Pundit Fact, titled "Bill Maher says more Americans have been to the moon than farmers who paid the estate tax in 2013," there may be some truth to Maher's claim. 

More Americans have not walked on the moon than farmers who paid the estate tax. However, if you add up all of the Americans who have walked on the moon and who have orbited the moon, then Maher's claim turns out to be true. 

To date, 24 Americans have walked on or orbited the moon, while 20 small farmers paid the estate tax in 2013.

Of course, just because Maher's statement happens to be somewhat accurate does not mean that it is a telling statement. 

The real question is whether the 20 small farmers who paid the estate tax should have had to have paid it.

Read the original article for a good overview of the estate tax/death tax issue.

Reference: Pundit Fact (April 23, 2015) "Bill Maher says more Americans have been to the moon than farmers who paid the estate tax in 2013," 

 

The Family Farm: Tractors, Cows …and Estate Plans?

Estate planning is simply essential to farmers and the family farm itself – just as important as the equipment, livestock, or crops involved. Unfortunately, estate planning is too easily overlooked with all of the day-to-day work to be done.

A recent article in USA Today, titled “As farmers age, planning for the future of their business grows,” explored this common problem.

Land is one of those things that seldom loses value. Agriculture, by definition, requires land (and lots of it) to operate on a profitable scale these days. Consequently, modern farms find themselves racking up a potentially hefty future estate tax bill on the basis of their land values alone.

Problem: When the land value represents the lion’s share of the estate value itself, then what happens when the estate tax bill comes due with only the land to pay the tab? Selling the farm would be akin to killing the goose that lays the golden eggs for the farming family. To make matters worse, the owners of family farms are getting up in years, and so time is of the essence when it comes to making plans to save these family farms.

The good news is that today, unlike for much of the last half decade or so, we have fairly firm estate and gift tax laws. Therefore, farmers and their advisors can make estate plans based on more than gut and intuition.

So, how do you pass on the family farm? Even more important, how will you pass it intact and who will run it after you do? These are questions that need an answer, sooner rather than later.

Reference: USA Today (May 19, 2013) “As farmers age, planning for the future of their business grows”

Can a Promissory Note Help You Qualify for Medicaid?

When it comes to ensuring proper care for your elderly loved ones, Medicaid can mean a world of difference … especially when your loved ones are running out of assets. So when their key remaining “countable” asset is illiquid, what options do they have short of draining it or risking an illegal transfer?

As you may well know, Medicaid is the source of nursing home care for many indigent Americans. Still others are caught in a netherworld of being above the minimum asset threshold for qualification, but having too few assets to realistically pay for their care.  It’s a sticky situation.

A promissory note may be one alternative to explore, as noted in a recent article at ElderLawAnswers.com titled “How Can Promissory Notes Be Used in Medicaid Planning?”

The focus of the article is a recent federal case out of Oklahoma, but the basics apply generally. Essentially, an elderly woman transferred her farm and accounts to her son in exchange for a promissory note. A note is a legally binding contract to repay as fixed sum and so it clears the Medicaid hurdle in question.

In this instance, this approach indeed saved the farm and the elderly woman received her nursing home care through Medicaid. Nevertheless, a promissory note is not a full-proof plan. For one, many states reject the idea and refuse to recognize promissory notes. For another, the plan can only work because promissory notes are legally binding contracts, and so if the note cannot be repaid there are potential tax burdens that may be triggered.

The article also points out there are several tools, like the promissory note, that can prove useful when seeking legitimate Medicaid qualification. This especially is true if you plan well in advance.

Danger! The Medicaid qualification rules vary from state to state. This is not a self-help project, as you may find yourself (and your elderly loved one) in a tricky financial and legal purgatory if you make any missteps.

Reference: ElderLawAnswers (May 15, 2013) “How Can Promissory Notes Be Used in Medicaid Planning?”

Saving Your Family Farm From Death Taxes

It’s a simple equation. What you own and how you own it will determine your estate tax liability. Every taxpayer should make plans to reduce this liability, especially if you have a family farm. Otherwise, you may lose the farm to pay the taxes. The Joint Economic Committee recently released a report on the devastating power unleashed upon the farm when an estate tax is triggered. Simply titled “Estate Tax Report Released,” the committee also considered the broader impact on the economy. The report, approved by the American Farm Bureau Federation and examined in Farm Futures, notes that, while farm owners may have a great potential wealth … such wealth is tied up in land (an illiquid asset) and is not necessarily cash-in-hand. However, the Internal Revenue Service doesn’t accept soil in payment. However, the IRS will hold you accountable for the estate taxes due on your land, even if you have to sell the land to pay for it. "When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings, or equipment to keep their businesses operating," said AFBF President Bob Stallman. "With 88% of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax." If you (or a loved one) own a family farm, then there is no time like the present to make proper estate plans to protect and preserve the farm and the family wealth it represents. You have worked hard to make a living from your farm. Isn’t it common sense to spend some time and money protecting and preserving it? Reference: Farm Futures (July 26, 2012) “Estate Tax Report Released”

Is Retiring from the Farm Harder than Leaving the Mob?

If you or someone you love is a farmer, then you know the special challenges that generally come with estate planning and, more specifically, the succession of the farm. Planning for your estate and for your family is a difficult concept, but it’s ever more difficult when it means planning for the land itself. A recent article from Drovers Cattle Network titled, “Commentary: Can you retire?” offers an interesting perspective on the farmer’s estate planning challenges. In the end, whether bovine, equine, or straight up agricultural, the problems are the same. Farms are living places in every sense of the word; any overseen gap in a farm is like a missed heartbeat. Will there be a missed beat or two between yourself and the next land cultivator? If yes, it may be more than either you or the land (the herd, the flock, or what have you) can bear. Planning for the farm succession is no easy feat in these generations, especially with youth more and more concentrated in urban locations/lifestyles and the farm a perennial casualty to the estate tax. It’s important to remember that any successful farm transfer is one that will have to begin early, with a well thought-out plan. How to transfer the farm is another matter, and a complicated one depending on your potential heirs, or buyers, and the farm itself. You owe it to yourself and to the land to appreciate these difficulties and form a full-fledged plan to deal with them. Be sure to engage competent legal counsel experienced in working with agricultural assets and farming families. Reference: Drovers Cattle Network (May 28, 2012) “Commentary: Can you retire?”

Houston, Texas Family Farm Succession Success – Not Automatic

My mom comes from a large farming family. We have a family ranch just outside of Kingsville, Texas. My best memories of Easter and Christmas are at the ranch with my many, many cousins. The smell of handmade tortillas, Spanish rice and the incredible pan de pulvo cookies! There’s a living legacy in that dirt!

Farm and family. Perhaps more than any other kind of industry or property, planning for the succession of the family farm poses a significant challenge to the estate planner.

Some of these challenges are described in a recent article in Agri-View titled Estate planning lays framework for smooth transition.

When the farm is a family farm, and therefore also the family business, planning for your estate is really about planning for the succession of the business and the farm. This can be a delicate process, but it is better to start the process sooner rather than later.

For one thing, don’t overlook the fact that farmland values can trigger estate taxes (real estate bubbles aside, land is the only thing that consistently grows in value – ‘cause God ain’t makin’ any more of it’ – and farms are all about land). Accordingly, some rather sophisticated estate planning (and liquidity planning) may be in order, or the family farm could be lost to the IRS. Not good.

Estate taxes aside, there are many other considerations to secure the future of the “family” element of the family farm. For example, who will inherit the farm, let alone continue to operate it? What if your children live in the suburbs and work every day downtown? Who will actually do the “farming?” Perhaps renting or sharecropping might be more practical. Regardless, these are the kinds of practical real-world matters that ought to be decided with a legal framework to ensure succession success.

So, if you are a farm-owner, and particularly the owner of a family farm, then there is much work to be done. While I recommend reading the original article, be sure to engage competent legal counsel, as well as any farm extension agent assistance that may be available.

Reference: Agri-View (March 29, 2012) “Estate planning lays framework for smooth transition”

Please stop by our website www.ardlawfirm.com or give us a call to discuss your planning options, 713-429-0218.