By ANN HINCH
Assistant Editor JEFFERSONVILLE, Ind. — In welcoming people to her session on farm estate planning and succession, Dr. Angela Gloy, only half-joking, told them, “Thanks for coming to the presentation on how to plan for your death.”
There were happier topics in rotation for workshops at the Purdue University Women in Agriculture annual conference Feb. 24-25, celebrating its first decade. But nobody lives forever, and planning for how one’s possessions and property will be divided is something Gloy said adults need to consider well before their golden years.
“I think regardless of your age, we need to have an estate plan,” she pointed out, adding though people often think of this as being the responsibility of retirement age, younger adults can list their assets and debts and how they want them divided. “It’s not that complicated; most 25-year-olds have an estate. It might be nominal, but … if they own a car, they have an estate.”
Such plans are important for farmers in part because their occupation, and sometimes their children’s, is literally tied to the estate in question. Such a plan is not just a will for the owner’s death, but also takes into account what will happen if heirs predecease them.
In one case, Gloy – a Purdue extension ag economics specialist who works with farmers on estate plans – said a woman had inherited her husband’s farm when he died, and her will stipulated only that the assets of the farm be equally divided among their four children; one son worked the farm. There was no buy-sell agreement in place to set out terms of the property’s disposition for the farming son’s interests.
But, Gloy said, things got worse. The farming son died before his mother, and there was nothing in her will that provided for his wife and their three minor children. What this meant, Gloy said, is that the mother, the wife and the children were all represented by separate attorneys because they had competing financial interests – the wife and children had no legal claim to the son’s share because he owned none of the estate as long as his mother was alive.
Further, the son and his wife didn’t have much in savings because he’d put much of his earnings back into improving the farm. On top of all this, the farm’s primary laborer was no longer around to do its work. “He wanted something else,” Gloy said of the deceased son, “and didn’t get it done.”
In another case she handled, a farmer owned his farm as a sole proprietorship and worked with one son; however, when he died he wanted to split his estate equally among his three children. After his death, the farming son was forced to agree to the farm’s sale because his two siblings wanted cash and he wasn’t able to buy out their share of the property.
Often on farms, Gloy said a parent and child will work together, but have different ideas for its direction and growth. Or, if a farmer has minor children, they will know who they want to care for the children if they die, but they don’t set it out legally. An estate plan could address both these scenarios. In the second case, for example, Gloy said the two non-farming siblings could have been paid by life insurance on the father, allowing their brother to keep the farm as his inheritance.
She said many parents want to be fair to all their children, but that a “fair” inheritance does not have to always mean “equally split.” She advised parents to explain their wishes to heirs and point out why an unequal division might still be fair, depending on circumstances – in many cases, Gloy said people respond to the idea of fairness, even if it means they get less.
In a third situation of Gloy’s, a mother wanted to transfer the assets of a non-working farm to her children, but wanted to do it in a way to avoid them having to pay taxes on the bulk estate upon her death. So, she was gifting assets to each child each year for a number of years, just under a certain limit so they wouldn’t have to pay taxes on the gifts.
When the assets of the farm had all been gifted, however, rather than hold the property until she died, the children sold it. Because they hadn’t consulted with an attorney or financial expert on this, Gloy said they were hit with a nasty surprise because the capital gains taxes on gifted property were higher than on inherited property.
The services of an attorney to draw up an estate plan might not be cheap, she explained, but it’s generally a lot less expensive than the consequences of not being prepared. The same can be said of the time involved in making a plan.
“Farmers find time for a Colts game on Sunday afternoon,” she pointed out. “We make time for what’s important to us.”
Time definitely shouldn’t be taken for granted; in a fourth case of Gloy’s, parents aged 76 and 78 contacted her about making a plan to pass their crop and livestock operation to their two sons, ages 51 and 53. All four people’s incomes were drawn from the farm, and there was a recent $500,000 expense from land purchased to expand the operation; in other words, there wasn’t much cash on hand.
Shortly after this, the mother had a stroke and her doctor and family decided she would need nursing care, since her condition was beyond their ability to care for her.
Because the farm was still in the parents’ name with no buy-sell agreement titling any part of it to the sons, Gloy said Medicare regarded the estate as “a jackpot” able to finance much of the nursing home care the mother would need.
But, because the farm’s value was largely tied up in land and non-cash assets, those had to be sold as needed to pay for her care for as long as she lived. “If you need cash quickly, it’s hard to sell that land,” she explained, current demand for farmland notwithstanding.
The lesson on this example tied back in to her early remarks about how anybody who owns any property has an estate; Gloy pointed out nobody should wait until they’re in their seventies to draw up a plan.
Perhaps another lesson came from an attendee whose father-in-law was diagnosed with Parkinson’s 10 years ago. Her in-laws had bought long-term care insurance, she said, because they wanted to protect the farm’s assets for the next generation.
The premium is expensive, around $2,000 every month or quarter – she couldn’t remember – but she said her in-laws believed it was important to have.
Gloy agreed, but said this type of insurance is a relatively new product and advised those looking into a policy to do their homework and proceed with caution.
Planning for one’s own death isn’t easy, she acknowledged; not only is there the work of listing out financials, it can be emotionally heavy. Facing one’s own mortality requires motivation, Gloy said, but sometimes it’s as simple as a mother wanting to make sure her kids are still taken care of after she dies.
It’s also a chance for parents to teach yet another life lesson, no matter how old their children might be: “If what you leave the next generation is a legacy of planning, that’s invaluable,” Gloy pointed out.
For details about the Women in Agriculture meeting, go online to www.agriculture.purdue.edu/wia |
