Is your estate plan in order?

Recently, a farm family contacted my firm looking for a way to minimize estate taxes and keep legacy assets in the family. They had done preliminary estate planning but still needed to protect their legacy assets because the estimated estate taxes were millions of dollars, enough to significantly alter their farming operations.

We worked with them to move the legacy assets out of a taxable estate while providing for succession and tax-planning opportunities. Those efforts saved them millions of dollars in estate taxes – money that would have had to be paid in cash.

This example is not just about protecting your assets in the most tax-efficient manner. It’s about having your estate plan ready for that inevitable day when a parent passes away, a family member marries or some other significant change occurs. Too often, we push back on estate planning because we’re busy planting, harvesting, fixing equipment, working with livestock or dealing with employees. It’s hard to find the time to devote to the deep dive of an estate plan.

But estate planning is one of the most important things you can do for your future. It protects – in writing — your family, farm and assets. It clarifies how you’ll transition or transfer your business when you’re no longer in charge. It can minimize the tax burden on your beneficiaries. Your estate plan provides transparency and clarity, helping avoid the painful scenario of siblings or other family members fighting over the estate. When your wishes are laid out in an estate plan, there’s no guessing about what you want.

How is an estate plan different from a succession plan?

Succession planning involves the people side of your business’s future, including management, leadership and family roles. Succession planning determines who’ll have ownership, or whether your operations should be divided, or how on-farm and off-farm heirs should be handled.

Estate planning is the next step. It provides the mechanics for carrying out a succession plan. It includes legal documents, such as a will, a durable power of attorney and your wishes regarding medical treatment if you can’t communicate them yourself. It lists your beneficiaries. An estate plan also focuses on business evaluation and tax planning. It often includes income deferral, gifting, charitable donations and the use of trusts. And it requires the assistance of experienced professionals with the expertise and objectivity to handle sensitive and challenging situations.

When should you make an estate plan?

Some people wait until their health is declining to secure an estate plan. Others start the process when their children are very young or when the value of their estate reaches a certain size, say, $5 million or more. In my opinion, you should start the process now and establish a timeframe to complete it. Stick to that deadline. You can set up an estate plan with the flexibility to change it later. If you already have a will or trust but haven’t updated it in five years, it’s time to take another look at it. You need to make sure your assets and beneficiaries are current.

How can an estate plan help with taxes?

The U.S. government can tax up to 40% of an individual’s estate over $12.92 million. Farmers and ranchers with land, equipment, buildings and livestock can often reach that dollar amount pretty quickly, especially in today’s inflationary environment. Moreover, an ill-planned gift creates a tax bill that heirs can’t afford unless they sell part or all of the estate. A tax consultant can help navigate the gift and estate tax exemptions so that more of your assets pass to your loved ones.

Apart from financial clarity, why is an estate plan valuable?

Tensions can run high when money, the farm and land are involved. An estate plan helps avoid family disputes. That often happens with expectations of both on-farm and off-farm heirs. Don’t leave important decisions to a grieving family with differing opinions and desires. An estate plan minimizes family conflict by laying out clear directions.

How can an estate plan help with charitable giving?

Whether you want to gift cash or specific assets, several charitable vehicles and tools are available to make sure gifts are made according to your wishes. A good plan will minimize income and estate tax liability for recipients.

What happens to my estate if I don’t have my wishes in writing?

Without a proper estate plan, a probate court will most likely determine what happens to your assets. This can take months and years to settle. The process can be expensive. It’s also public and gives the family limited control. An estate plan ensures your assets, land, investments and retirement accounts get into the right hands without a lengthy, public and expensive probate.

Estate planning can be complicated, but it’s vital. It’s the best way to protect your family, your legacy and your life’s work.

Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it a reality. Contact him at [email protected].