In last week’s blog Land rich but feeling dirt poor? You have more than you think, I gave an overview of the unfortunate outcomes that can happen when farmers do not have their estate planning ducks in a row. Richard Bollenbeck, a Wisconsin attorney, told multiple horror stories at a monthly agri-business meeting.
He is a lawyer who does not recommend wills as a means to divide family assets. He talked about the differences between wills, revocable trusts, and irrevocable trusts. There have been changes in the law that affect transfers of assets and he reviewed them as well. Bollenbeck suggested that most people are best served with a revocable trust.
About 35 to 40 percent of the farms in Wisconsin are in revocable trusts. It’s more common now since changes to the trusts were made in 1995. Items (land, equipment, and so forth) can now be added or removed from the revocable trust at any time. And the trustee no longer has to be an attorney (who you pay a healthy fee); it can be a family member or nonrelative. The disbursement process is much swifter and less cumbersome with a trust instead of a will. There is also the possibility to minimize/avoid state death taxes related to probate with a trust.
He also reminded attendees that having a Limited Liability Corporation (LLC) is not the same protection as a will or trust. Having an LLC is a good thing to protect assets, but it has nothing to do with transferring them. You need a will or a trust to do that.
Bollenbeck described five criteria for a will to be binding:
- Be in writing (oral agreements are not valid)
- Must be signed (having it in a drawer and not signed as leverage over others makes it invalid).
- People must be 18 years of age or older at the time of signing
- Two disinterested parties need to witness and sign it (those that do not benefit).
- Signees must be of sound mind. As people age, this could come into question. Write the will while all faculties are secure. A will can be changed, so it can be altered or a new one written as long as there is no sign of mental illness.
More to think about
In addition to the basic trust and will, there are also health care and power of attorney documents that should be drafted so everyone is aware of who is to make what decisions. As farmers age, they need to think about their long-term health care. If not properly planned, the cost of off-farm senior living can drain the farm of its assets – leaving nothing for the next generation they hoped to help.
Elder care now averages about $8,000 a month, so it doesn’t take long to spend a substantial amount of savings. And any transfer of assets (typically to family) must be completed five years prior to elder care or else those assets are still fair game to pay care costs.
Bollenbeck detailed Medicare, Medigap, and Medicaid. With extended health care needs, a person can easily spend their assets down to nothing. Medicaid only kicks in when there is nothing left (assets or cash).
There is a lot to think about, but Bollenbeck advised the group to find an attorney you trust and to ask questions. He works in Wisconsin and other areas may vary. If your attorney does not have the answers, consider a new one. Work with someone who understands farming because it is a totally different beast than other business models.
The author is the online media manager and is responsible for the website, webinars, and social media. A graduate of Modesto Junior College and Fresno State, she was raised on a California dairy and frequently blogs on youth programs and consumer issues.