Top Estate Planning Mistakes Farmers Make – Part 3
We conclude our series on the top estate planning mistakes farmers make today with:
- Treat all the kids the same – In our seminars on this subject, the question of how to treat farm and non-farm kids can be the most vexing issues for farmers. Many farmers who control the farm and only pass down the farm upon their death and leave everything equally to all of the kids, while one or more children are actively involved in the farm operation may not be recognizing the extra value that these farm kids have provided. Generally, we see that the farm operation is split from the farm land rental component and the operation goes to the farm kids and the land is split among all the kids. Many times, insurance is used to equalize this split also.
- Gift away remainder, keep life estate – Many farmers assume if they keep a life estate and leave the remainder to their heirs, then this asset will not be included in their estate. WRONG. This asset is included in your estate, the only thing you avoid is probate.
- Failure to stabilize and maximize values – Does the farm operation maintain key person insurance in case of death or disability. Are proper buy-sell agreements in place.
- Lack of adequate records – This will drive the trustee/executor crazy! Have you generated a system to keep track of all of these necessary documents and are they in a safe place such as a safe deposit box. Have you sat down with your planned trustee or executor and explained where the documents are and what they mean. The more you do this now, the less expensive and time consuming it will be later on.
- Lack of a master plan for your estate – Many times farmers try to do this plan themselves and get in trouble for it. As the saying goes “Would a surgeon do surgery on himself?” applies to farm estate planning. You need to involve the appropriate advisors and try to meet with them at least annually to update the plan. Conduct an annual “fire drill” to see what the estate and income tax consequences would be.
Failing to plan is planning to fail. Do not fall into this trap with your estate plan.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
[…] See the full Farm CPA Today! posts here (they go into more detail, as Paul Neiffer is an expert on this subject): Part 1, Part 2, Part 3 […]