Farm and ranch estate planning and business planning involve countless choices and numerous wrenching decisions but none that ranks with pursuing fairness between and among the heirs.10 In almost every situation where it is planned for the farm or ranch business to continue into the next generation, and it appears that there will be both on farm heirs and off-farm heirs, the issue of fairness is paramount if one of the objectives of the parents as property owners is to assure harmony within the family after the deaths of the parents.
Neil E. Harl, Farm and Ranch Estate (and Business) Planning–Part 1, Farms and Ranches, March 2015
Quote for the Day
March 12, 2016 by Leave a Comment
In a Nutshell: Asset Protection and Trusts
March 11, 2016 by Leave a Comment
Asset protection for you
In a nutshell, here’s what you need to know about trusts as they relate to asset protection: the less access you have to assets in a trust, the less likely your creditors will have access to those same assets to satisfy any claims they may have against you. Of course, the corollary to that rule is: the more access you have, the more easily your creditors will be able to invade your trust.
So, for example, if you’re the grantor/creator of a revocable living trust AND the trustee AND a beneficiary of that trust, any creditors you may have won’t be standing very far behind you in the asset/income disbursement line. They may even be standing in front of you. Heck, they may have already taken up residence in your trust.
On the other hand, if you’re only the beneficiary of a irrevocable trust set up by someone else AND if the trust document says that the trustee (also not you) has total discretion as to whether she will disburse funds to you, then your creditors would be well advised to look elsewhere for relief.
Those are two poles with a broad spectrum of options in between, a sliding scale of creditor protection, if you will. I will discuss some of the points on that spectrum in later posts (see the tags below for a kind of road map). But to repeat: the less access you have, the less access your creditors have.
Asset protection for your children
Now, stop thinking about yourself, and think instead about your children. The same rules apply to them. The less control they have over any inheritance they receive from you, the better protected that inheritance will be from their creditors.
So here’s an idea: Instead of giving them a lot of money outright when you die, or even instead of distributing money and other assets from your trust to them in stages–1/3 at age 25, 1/3 at 30, and 1/3 at 35, for example–consider giving your successor trustee discretion as to when, why, and how much he might distribute from your trust into the anxiously waiting hands of your children.
Why? Because if one of those children has creditors knocking on his door when you’re alive, you can bet those same creditors will be knocking on that child’s door even more vigorously the moment your obituary goes viral. But, if you’ve set your trust up correctly, those creditors will have to rely on the child rather than the trust for payment.
That’s as it should be, by the way. Your child’s creditors are his creditors after all–not yours.
Estate Planning: Are You Prepared for Incapacity?
March 9, 2016 by Leave a Comment
Not too long ago, estate planning was all about the estate tax tail wagging a sometimes reluctant dog. That was unfortunate for a number of reasons, among them, the focus on estate taxes caused planners to look beyond all those who had no estate tax problem. Likewise, those without that estate tax problem walked around unaware that they probably should do some planning nonetheless.
Did I just describe you? If so, maybe it’s time think again about the need to do some estate planning.
Though avoiding estate taxes still motivates some (very well off) people to plan, the driving force behind estate planning these days for most people is one or more of the following. The desire to
- Maintain control of their property while they’re alive and well;
- Provide for themselves and their loved ones if they become disabled or incapacitated;
- Give what they have
- To whom they want,
- The way they want,
- When they want, and
- Minimize the impact of professional fees, court costs, and taxes–typically income taxes first, then estate.
That second item, the one about providing for your family if you’re disabled or otherwise incapacitated, is a big one. Did you know that a 20 year old has a 1 in 4 chance of becoming disabled before they retire? It gets worse with age. According to a 2005 AARP study,
The lifetime probability facing a 65 year old of developing a disability in at least two primary activities of daily living for at least three months or becoming cognitively impaired is 44 percent for males turning age 65 and 72 percent for females. Therefore, women face a 64 percent higher risk than do men.
A well-drafted estate plan will address those probabilities and ensure that you and your loved ones are better able to deal with a disability or mental incapacity should it happen. That plan will include
- The designation of a trustee and/or agent to manage your property while you’re unable;
- A living will, so your doctor and loved ones will know what you want done when you’re unable to communicate; and
- A health care power of attorney, so your health care agent can do what you would do in the same circumstances–if you were able.
Those last two items collectively are known in Utah and Wyoming as an advance health care directive by the way. Do you have one in place? Do you have a trustee or agent to manage your property in case you no longer can? Then maybe it’s time to do some estate planning.
Quote for the Day
March 9, 2016 by Leave a Comment
What is decanting and how does it relate to trusts?
The term “decanting” sounds mysterious, but in reality, decanting is simply a form of trust modification initiated by a trustee. The trustee accomplishes the modification by moving assets from one trust to a new trust with different terms. Estate planning attorneys draft trusts designed to last for generations based on assumptions about the beneficiaries that may bear no semblance to reality. Decanting then stems from the desire to make changes to an otherwise irrevocable trust.
Gerry W. Beyer and Melissa J. Willms, “Decanting is not just for sommeliers,” Estate Planning Studies, July 2014
Quote for the Day
March 8, 2016 by Leave a Comment
On becoming a trustee one enters a relationship which is governed by rules and bounded by limits. A trustee who thinks of himself or herself as controlling the relationship is far more likely to encounter serious trouble than a trustee who recognizes that the more practical characterization is that of a faithful partner with the grantor and the beneficiaries, in fulfilling the trust’s objectives.
“What It Means to Be a Trustee: A Guide for Clients,” by the Fiduciary Matters Subcommittee of the ACTEC Practice Committee, 2005
DocuBank: Estate Planning and Health Care Documents at Your Fingertips
March 8, 2016 by Leave a Comment
I recently became affiliated with DocuBank, a firm that allows my clients and me to store my and my clients to safely and securely store our estate planning documents, including our living wills, health care directives, and HIPAA authorizations. In turn, your and my doctor or the hospital in whose beds we might by lying in can access those records and, we hope, follow our wishes outlined in the relevant documents.
To help make this happen–and fast–DocuBank also provides you and me wallet-sized cards with a summary of our information and phone numbers and the like. It’s pretty nifty. Price well. And, something you should consider using to store your important documents.
Quote for the Day
March 7, 2016 by Leave a Comment
Regarding one of the drawbacks to joint trusts in a non-community or separate property state:
Loss of Creditor Protection
All of the assets of both spouses may become subject to the claims of creditors of just one spouse. In addition, all of the assets of both spouses may become subject to the environmental liabilities of just one spouse’s separate property. These results can usually be avoided if separate trusts are used.
Louis S. Harrison, “Marriage is Joint; Why Not Your Trusts? When to Use a Joint Trust As a Passthrough Entity in a Separate Property Jurisdiction,” Journal of Passthrough Entities, May-June 2005.
Be Careful Out There
March 7, 2016 by Leave a Comment
Here’s a disconcerting claim at Frontline:
A new working paper by professors from the University of Chicago and the University of Minnesota suggests cause for concern. According to the study, 7 percent of advisors have been disciplined for a fraud dispute or some form of misconduct. That can include anything from putting a client in unsuitable investments, to misrepresenting or omitting key facts, “excessive trading,” negligence, or trading on a client’s account without his or her permission. Of the registered advisors who engaged in misconduct at least once, 38 percent are repeat offenders.
And here’s another:
Misconduct is not necessarily a career killer, though. While roughly half of advisors lose their jobs after an offense, 44 percent are back in the industry within a year. That’s especially troubling, as “prior offenders are five times as likely to engage in new misconduct as the average financial advisor,” according to the study.
Seth Turner at Utah’s Deseret News has some suggestions on how to avoid working with an advisor with such tricksters:
- Know how your advisor makes money. I basically agree with him, though I tend to push back against his subtle anti-commission bias. Yes, you should be clear on what you’re paying and yes, if there’s a less expensive way to achieve the same ends, more power to you. But a lot of very good financial advisors make their living via commission. Don’t write them off simply because that’s how they get paid.
- Ask for certifications. Again, good advice, but don’t take it too far. The author mentions CFP, ChFC, and CFA as key certifications. Which one of those is not like the others? Don’t know? My point is not to denigrate the CFP and ChFC designations–both valuable credentials–but they are orders of magnitude less difficult to obtain than a CFA. I’m talking the difference between an undergrad and a graduate degree. In any case, don’t just look at the certification on your advisor’s business card, go to the certifying body’s website and check up on your advisor.
- Ask about fiduciary responsibility. Turner almost offers a good bit of advice on this point: get a “written agreement of fiduciary responsibility.” I say “almost” because I’m not sure what such an agreement looks like. What I recommend is what I am now using with my clients: an engagement agreement, which spells out what I am doing and not doing for my clients, what I will charge them for my services, and when our “engagement” ends.
Turner then asks “What if you find out your advisor has a history of fraud?” He’s a little more forgiving than I would be. “Probably best-off looking for a new financial adviser”? No, you should probably run for the hills. Your finances should not be rehab for fraudsters. Your potential advisor might be a nice guy or gal now, but let them find employ elsewhere, preferably in a a different occupation where they can do good without doing bad to someone’s brokerage account. Remember: “prior offenders are five times as likely to engage in new misconduct as the average financial advisor.” FIVE TIMES.
You have a long road ahead of you. It will be an easier trip if you have the money to reach the end.
Quote for the Day
March 6, 2016 by Leave a Comment
“Revocable living trusts are useful vehicles for many people. Establishing a trust is certainly an act of love for one’s heirs – the streamlined transfer of assets upon one’s death being the main benefit of a revocable trust.”
Susan Bondy National Financial Expert and Columnist September 23, 2001
An Estate Planning Guide for Farmers and Ranchers
March 5, 2016 by Leave a Comment
The University of Wyoming Extension office provides some good estate planning advice for farmers and ranchers in its online offering, Passing It On: An Estate Planning Resource Guide for Wyoming’s Farmers and Ranchers. Check it out.
By the way, my use of their logo doesn’t imply their endorsement, nor does it imply my endorsement of what they’ve written. What I’ve read of the guide, I like; however, estate planning is a complex area. It will come as no surprise that I recommend you consult with an attorney who practices in that area.