Families often come to our office with a goal of "keeping the land in the family." They often have concerns about a child losing part of that inherited land in the event of a divorce. Or perhaps a child receives the land and then passes away with an estate plan that simply leaves all of his or her assets to a spouse, offering no protection for that land in the event of the remarriage of that spouse.

But we also witness many situations where the in-laws have been in-laws for 30 years, and at some point along the way, they become sons and daughters and the “in-law” designation is dropped.

FAMILY NOW: The marriage of a son or daughter adds a new dimension to estate planning. Photo: Mike Watson Images/moodboard/Thinkstock

We have many clients who want their in-laws included in their estate plan. They want to demonstrate the family connection that has been created, while protecting their assets from the common concerns related to marriage. In those cases, options exist that allow in-laws to be included in a very protective manner.

One technique allows the use of what I refer to as a “trigger.” These provisions, technically known as a limited power of appointment, grant a trust beneficiary or third party certain limited rights to alter distributions based on circumstances later in time. The provisions of this trigger are crafted by the creator of the trust, but carried out by the person to whom the power of appointment has been granted.

Let me provide an example to demonstrate how this “trigger” might work.

First, what not to do:

You have a section of land that you want your son to receive. If your son were to die, the default under your standard estate plan states that the land will pass to his children if they are of an adequate age, which is stated in the document. But let's assume your son outlives you and receives the section of land as an outright distribution. To be clear, this is not my recommendation.

During his life, the land is at greater risk in the event of a divorce or other creditor claim because it is owned in his name. If your son dies with a typical will that passes all his assets to his spouse, that inherited land is now owned by his wife. Will she remarry? If she does, will she get a prenuptial agreement to safeguard the land for your grandchildren? Also, that section of land will be included in your son's taxable estate when the son dies because it was given to him outright. Maybe there will be estate tax due, maybe not. That will all depend on what the laws are at the time of death and the value of the land and other assets in the estate.

While the one-dimensional planning worked for one generation to keep the land “in the family,” that land was put at great risk upon the passing of the son, even though an in-law was not included in your planning. 

Ok, so let's create a real plan:

With this same section of land, let’s create a continuing trust for your son. He is a straight-shooter, not foolish with money and even though he doesn't like paperwork, he will hire the right certified public accountant and attorney to assist him, so he can do what he loves to do — farm. Upon your passing, your son inherits the section of land to be held in a trust. In some states he can be both the trustee and the beneficiary of the trust.

Typically, the trust will be set up such that he will just take the income off the section of land each year, and the land stays protected in the trust. Within this trust that you set up, you can give your son the right to include or not include his wife as a beneficiary at some point later in life. Even beyond that, you can decide what level of beneficiary you want her to be. Perhaps you grant your son the right to grant his spouse right to the income from the land following his death, but not the principal, thereby protecting that land for your grandchildren.

Son will make his decision, which he can change while he’s alive, on how his wife will receive from the trust following his death. He will consider their other resources, her health, her needs, the age of their children and many other factors. The land is protected, while the opportunity is available for beloved in-laws to benefit from the asset if it makes sense at that time. In this way, the benefit of “keeping the land in the family” can be expanded to include in-laws, but the land remains protected in order to ensure that the “family” in which the land is kept is your family for generations to come.

Take action to make sure you truly have explored options that enable your plan to be protective, yet flexible enough to include those who matter most to you and your descendants. Work with a qualified estate planning firm that focuses on agricultural estate planning to best meet your needs. 

For 20 years, Thompson has practiced law and is the founding attorney of Thompson Law PC. For additional information on farm continuation planning, email [email protected], call 605-362-9100 or visit cathompsonlaw.com.