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Estate plan edge

How to create a smooth and easy estate settlement

Estate Plan Edge: A loved one’s death is an inherently stressful time. Don’t cut corners and make it worse.

Farmers have many ideas about what they want their estate plans to do for them and their families. Think: Assure continuation of the operation in case of disability, minimize estate taxes, protect the successor-farmer, insulate the farm from kids’ divorces or catastrophic claims, keep “the state” from taking it, divide the estate fairly, and on and on. But in my experience, the most universal goal of all is to make everything go smoothly for the family at the time of the farmer’s death.

There are any number of theories on what that means. The most fundamental issue is this: Avoid a shotgun approach. Put all your instructions for the division of your assets in one legal document, make sure all your assets will be controlled by that document, and appoint a responsible person as the “fiduciary” with authority to carry out those instructions.

A revocable trust is the most flexible document available to provide complete instructions for the division of your assets and any stipulations you want to place on your estate. While you are living, your trust can own your land, equipment, inventory, home, savings — pretty much everything that makes up your estate. If you have a business entity (partnership, corporation or limited liability company), your trust should own that. The only type of asset your trust shouldn’t own while you are living is your IRA, but you can name the trust as the designated beneficiary to make the IRA coordinate with the rest of your estate.

Fiduciary authority

When you die, the successor-trustee will be the fiduciary with the obligation and authority to do what needs to be done. They can carry out their responsibilities without probate court, which generally means with less expense. As fiduciary, they hold your estate to pay the final taxes that you owe, pay your final expenses, satisfy any debts, secure the step up in value for your heirs, sell assets that are supposed to be sold, and divide and distribute what you said shouldn’t be sold.

This may seem obvious enough. Isn’t this the normal course? Unfortunately, no. Important details are often missed, and then your intended fiduciary still has a duty but doesn’t have the practical control they need to follow your instructions.

Say you leave a bank account out of your trust, held in joint ownership with your son or daughter. The money passes to the child as an inheritance. It is counted in your estate, but your fiduciary does not have access to the money and cannot use it to pay your taxes or debts. Similarly, who is beneficiary of your life insurance? If it is not payable to your trust, the beneficiary gets that money even though the fiduciary has a legal duty to account for it and potentially pay taxes on the money.

Tax law requires the fiduciary to file your tax returns (income, estate and gift). What if your will names your daughter as executor, but the trust names your son as trustee? The executor will have difficulty getting information about trust assets, and the trustee will have difficulty getting information about assets outside the trust. Who is the fiduciary? The trustee likely holds most, if not all, of the assets. But the law presumes the executor is to file your tax returns. How will the executor pay the taxes? Also, tax elections must often be made. Who makes them, the executor or the trustee? They may disagree. If you name the same person as executor and trustee the potential for conflict disappears.

Make sure your legal document provides all the instructions for your entire estate. Make sure all assets will be controlled by the person best-suited to be your fiduciary. Death of a loved one is an inherently stressful time. Don’t cut corners and make it worse.

Attorney Curt Ferguson owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com.

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