Estate Planning has always been “HOT”! – but now, for far different reasons.  An old universal worry was how to avoid unnecessary estate taxes.  Now that’s a challenge for only the very wealthy – those couples worth $4 to $6 to $10 million or more and going to zero in 2010.  But unless something positive happens by 2011 in our do-little Congress (If pro is the opposite of con is Progress the opposite of Congress?) a 55% Federal estate tax will be charged on net assets of the deceased that exceed $1 million.  A properly drawn trust between two spouses may then protect $2 million plus – but only if the estates assets are balanced … and documents are drawn up properly.

I always said there are 3 ways to own a “farm”:  buy one, marry one, or inherit one.  Or, as friend Mike Yoder from Middlebury, Indiana said while introducing me to his group years ago, “Ron doesn’t know everything – that there is a fourth way –marry a school teacher, and keep her on the ‘pill’!”

When does Estate Planning begin?  When you see a child using toys in a constructive fashion – playing with a stethoscope, or a doll house – it may be that they are dreaming / thinking / planning their future estate.  

“Why should you plan? … Because your future depends on it and so does the future of those living and/or working around you!” 

Most of our readers own real estate.  If it’s your home, or land owned for development, it’s probably worth much less now than last year.  But, if it is productive farm land – almost regardless of where it’s located – the values have escalated a bunch.  Well, hurray for you!  But, if you are an heir who expects to take over the family business someday, your challenge to be a successor has become even more gigantic.

Tool #3:  Use Life Insurance

If the control of land is critical to the success of your operation, you as the owner had better be named the insured on a multi-million dollar life insurance policy if you expect to leave the land and business to heirs who expect to keep on “farming”… while the other heirs get their “share” in the form of cash proceeds of the policy. 

If both parents are alive, then a survivorship contract that pays at the last passing of the two may work best. It’s by far cheaper, outlay-wise.  A single life policy may be used but how do you guess who is the one to “croak” first?

Tool #2:  Borrow the Needed Money

If you think your heirs will be able to go to the lending institutions and borrow the money … Whoa … the banker is going to want to see how this vast new outlay will cash flow ….But remember Uncle Sam will someday value it at fair market value – no matter what you say it’s worth – for tax purposes – unless you use some special provisions that will hopefully still be available...

Tool #1:  Save Up the Money

 And since these ideas are in reverse order, the succeeding children can save up money and then pay cash for the land … YOU HAVE TO BE KIDDING!? 

Tool ZERO:  Gift It Away

You can gift up to $1 million per individual, plus $12,000 per person per year.  But, by doing so, you’ve given up your future estate tax credits.

So, this makes the survivorship life insurance idea even easier to swallow.  Paying a small percentage at a time (through life insurance premiums) is a whole lot easier than having to pay interest as well as the money borrowed back to the bank.

If none of these ideas are possible – or can’t go far enough – maybe the land needs to go inside an LLC – a limited liability company, with shares split as to ownership of assets going in, and with special verbiage in the contract agreement that allows a stepped up tax basis on assets inside the corp at ones passing.  This is not possible inside a C-Corporation no matter what rules you make up … But don’t do so without understanding what the rules are to qualify for the Farm Service Agencies programs.

When left to non-business heirs, the shares have little or no value on the open market.  And, if the
“NON”ers want to sell, they can be obligated to offer the shares to the fellow owners for “quarters” on the dollar.  Only if they refuse would the LLC be obligated to buy as the backup. When the business is sold, only then would the non business owners get full value.  The selling would be controlled through a properly drawn buy-sell contract, put together before any shares would be distributed.  Hence, the sale would never be a decision made by the “outsiders” – only by the active participants – unless lousy management would force the issue. 

Why did we stop dreaming … planning?  Maybe we stop because reality set in, or maybe because of the mixed messages we received from parents, children, friends and even technical advisors.  We love to procrastinate, especially when dealing with sensitive issues.  Roger Hoelscher shares, “It would be helpful if everybody could die twice.  Then maybe before our ‘second death’ we would take care of what needed doing”. 

Some believe they are immortal – pay little attention to any such “nonsense” – thinking, “I have time”.  One question:  How come so many others appear in the obituary columns younger than you? 

 “How do we get started again?”  The truth is probably that you never stopped – just delayed, until now, before deciding that good planning might be necessary to either “lock in” the gains you’ve made, or figure out how to prevent unnecessary challenges certain to attack, or sink, viable ideas or enterprises on the wild seas of change. 

Where do I begin?  “All glory comes from daring to begin” (Eugene Ware). How about using
Steven Covey’s idea:  “Begin with the end in mind”?  Do you want your dream to continue beyond you?  It’s amazing to me of the hundreds I’ve met – who claim they do want their businesses to go on after their passing, but have not done much, if anything, to see to the possibility it can happen.

Maybe we can help you! Our team has been at it a long time -40+ years. Our experience validates
the use of the words that are in our corporate name. We believe in helping to protect your interests first and foremost! Contact us for particulars --  Ron & Bruce Eberhard

Warning: Always review all of Ron and Bruce's ideas and suggestions with competent legal and tax counsel!