One objective of estate planning is to control costs and reduce stress on the family. One way to keep costs and stress down is to avoid court. And the best way to avoid (probate) court is a living trust.

The trust is an agreement that can be acted upon by the trustee you name without court involvement. But believe it or not, for some families, it might be better to go to court.

When an estate is administered through probate, disagreements are presented for the court to resolve. When your trust is being administered without probate, the trustee and beneficiaries each assert how the property should be divided, but there is no authority figure in power to make an enforceable decision.

If your trust leaves anything for beneficiaries to argue about, administering the trust can be like a divorce without a judge.

Equal division

One of those phrases that raises red flags for me as a planner is when the client says, “Our four kids get along, so let’s just say ‘divide it equally’ and let them decide who gets what.” If your estate was just savings, securities, life insurance and the like, administering the trust is simple. The trustee converts all the assets to cash. The trustee pays your final bills, taxes and expenses. The trustee tells each beneficiary about every dollar, and the amount each child is going to get. The children acknowledge that. The trustee gives each child their equal check.

But a farmer’s estate isn’t like that. The biggest part of your estate is land. You may also have millions in equipment and livestock. “Divide equally” means equal dollar value. The trustee has a fiduciary duty to assure that everyone gets their full share. So, what could possibly go wrong?

If your estate is not going to be converted to cash by public auction, plenty can go wrong.

Avoiding division by auction

How do you “divide equally” the real estate? The only certain way is for the trustee to deed each child an undivided one-fourth interest in all tracts. But from then on, the four children as co-owners must decide together what to do with the land. One child is the farmer. Is he going to continue farming that land? How much rent will he pay the other three? How will the four landowners decide?

Instead, could the trustee parcel it out, each child receiving a separate tract of about equal value, and make up any difference in cash? Sure, but how are they going to determine who gets which parcels? Then, who sets the value of the property to make sure each gets equal value? Two different appraisers can come up with quite different values, and disagreeable children will think their tract was overvalued. The trustee can only do this if the children unanimously agree.

How about the equipment? Your farming child wants to keep most of it. He will need to pay the others for their three-fourths of the value, since he only inherited one-fourth. But if the equipment is not sold publicly, what is the value? His used-equipment-dealer friend tells him it’s worth $600,000, but the other children are sure it would bring at least a million in an online auction. The trustee, to play it safe, will put all the equipment up for public auction, and let the farming son bid against third parties for what he wants.

Arbitrary division of livestock

Next, father and son have been running livestock together for several years, and the son swears that 80% of the current herd is his, as his father was gradually moving toward retirement. Is it true? Can the trustee prove otherwise? If any cattle are his, the son must either remove them from the property or else start paying proper rent.

Similarly, the daughter’s horses have been kept on the farm for several years. Of course, her father never charged her. As of his death, she must remove the horses or start paying fair market price for use of the facilities. How much? What if she doesn’t pay? Will the trustee evict the horses?

The trustee can’t arbitrarily make the subjective decisions about value, asset division and rent. Any beneficiary who doesn’t get one-fourth of the estate value can sue the trustee for breach of fiduciary duty. So, the trustee won’t act without unanimous consent. If the beneficiaries don’t agree, the trustee’s only safe route will be … you guessed it, asking a court to decide.

A living trust is great if you don’t leave questions open for disagreement.

Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com. The opinions of this writer are not necessarily those of Farm Progress/Informa.