Estate Planning in Agriculture
ADAM R. BIRK
CAPE GIRARDEAU, MISSOURI
"In this world, nothing can be said to be certain, except death and taxes." Benjamin Franklin, 1789. I don’t intend to venture into politics too much other than to say Mr. Franklin’s statement about taxes seems to have not held up for a large portion of the population. That being said, he is absolutely correct that death is still a very certain part of life. Preparing for the one absolute certainty in life only makes sense.
The first question to answer about estate planning is why it is necessary at all. Firstly, estate planning is much cheaper than not planning. In Missouri, other states may vary, the attorneys fee is set by state statute based on a percentage of the probate estate. It varies slightly depending on the size of the estate but 3% is the round figure. This same fee schedule also applies to whomever serves as personal representative. As an example for this, if your estate is worth $1 million dollars then the probate attorney will be paid roughly $30,0000 and the personal representative will be paid roughly $30,000. Attorneys fees to do estate planning will typically cost $5-15,000 depending on the size and complexity of the estate. While this may seem like a lot, estate planning is often much cheaper than the alternative of using the probate court.
Secondly, estate planning prevents fighting amongst the heirs (which creates very costly attorney fees) and preserves relationships. Without direction, people tend to want to fight over everything and claim all the property as their own or create some reason as to why another person doesn’t deserve to receive anything. A very common call I get goes something like this “I haven’t gotten to grieve and they just want to take everything and that’s not how Billy Bob wanted it. I just want everything for myself because that’s what Billy Bob said he wanted. I’m not being greedy, I just want to honor his wishes.” The only way to ensure these issues are avoided is to prepare and set very clear instructions as to how your assets are to be handled. When things are written on paper and clearly stated and signed, then everyone gets a copy and can see exactly how you wanted to handle your assets rather than relying on Peggy Sue’s word that Billy Bob wanted her to have everything.
Third, the courts can be avoided. With proper estate planning, the courts can be completely avoided. A trust allows the trustee to administer the estate on their own without court supervision. A trustee should seek the assistance of an attorney to help guide the trustee through the administration process but there won’t be any running to the court and seeking approval to sell land, provide accounting, put notices in the newspaper, etc. like there is with probate administration. Courts bog down the process and make the estate administration take much longer because you have to comply with certain rules and time requirements. Not only is this process frustrating and burdensome but it could also be costly as the personal representative may make decisions based on how to work within the court system best rather than making decisions based on how to handle the assets best like a trustee would do. Avoiding the courts and creating a trust creates a lot of flexibility, freedom, and reduces stress.
Lastly, estate planning is especially necessary for farmers and business owners to ensure a peaceful transition of management to the next generation and the carrying on of the farm business. Most farmers want their operation to continue on after they pass. For this to happen, the land, equipment, and other assets need to be protected and specifically directed to the next generation. For example, let’s say that Frank has farmed with you all his life and wants to continue the farm. Your other child Albert has no interest in the farm. Without any planning, both Frank and Albert would have equal interests in everything and Albert could force the sale of both land and equipment either during or immediately following the probate process. Alternatively, a trust can establish directives for Frank to continue as trustee and manager of the land and the farm. Guidelines can be established that the property value is to be assessed upon your passing and terms assigned for Frank to purchase Albert’s half of everything over a ten-year period. This accomplishes several things. First, the management of the farm goes on with clear instructions and Albert isn’t trying to take over as soon as you pass. Second, Frank isn’t forced to purchase half of the farm all at one time. Frank can afford the farm without selling off large portions of the farm because you created reasonable terms within the trust. Lastly, Albert is receiving his inheritance over ten years and can’t squander it all in the first year.
There are many more advantages and reasons to conduct proper estate planning. With the help of a good estate planning attorney, you can create a plan as simple or complex as you want it. With good estate planning comes great flexibility and direction of your assets exactly as YOU want. Without any or poor estate planning, your heirs are forced to follow the very rigid state laws which do not support today’s complex farming operations.
Please sit down with your local attorney to discuss your estate planning needs. Online services and cheap attorneys are cheap for a reason as they do not consider the full complexity of your operation and do not make all of the necessary adjustments to make a peaceful transition. If you have questions regarding estate planning or have topics you’d like me to discuss, please email me at abirk@birklegal.com. This article and the statements made within are intended for informational purposes only. In no way should this article and the statements made within be construed as legal advice. ∆
ADAM R. BIRK
BIRK LAW FIRM, LC