At least once a year, I feel the need to write about the importance of regularly updating your estate plan. Apparently, most people don’t like to think about dying very often, because they don’t update their estate plan for years on end!
Maybe it would be easier if you think of updating your estate plan as a necessary element in the long-term success of your farm. Perhaps you could think of it as carrying on the legacy that began with your farming ancestors. It could motivate you to simply want your affairs to be as smooth and efficient as possible for your loved ones.
But why update? Can’t you assume that your attorney wrote it right the last time?
You must update periodically because things change — things that can’t be predicted. There are changes in your life and operation. The asset mix evolves over time. The value of machinery, for instance, might be a larger portion of your estate, and it is no longer fair to give it all to one child. Maybe the parcels of ground that were designated for particular children don’t make sense in light of current holdings. Perhaps a child has come back to the farming operation and should be treated differently. Even the charitable or cash gifts you stated in your plan might have become outdated.
That’s the personal side. But the other side of updating has to do with the law. Tax law is what most people think of, and in the past few years there have been significant developments in the kind of tax planning you can do in your estate plan. If your will and trust have not been updated in the past several years, you are likely leaving your heirs exposed to unnecessary taxes at or after your death.
But there are other laws that affect estate plans. A couple of years ago, Illinois rewrote the divorce laws pretty much from the ground up. In your estate plan, did you intend to protect your farm, when it passes to your children, from an in-law that becomes an “out-law”? If that was one of your goals, will it still be accomplished given the latest divorce laws?
Other laws have changed as well, but without a doubt, the biggest estate planning legal development in decades just happened. The Illinois Legislature completely rewrote the Illinois trust code. The all-new trust law goes into effect Jan. 1.
Illinois was somewhat known for its conglomeration of laws affecting trusts. For example, “beneficiary” was not even defined. Many important things were left for courts to decide rather than being spelled out in the statute. Just a few years ago, there were still court cases over basic questions such as whether the assets in your living trust should be used, on your death, to pay your debts. Some attorneys took the position that you could have outstanding bills (medical, credit card, operating debt, etc.) when you died, and the trustee of your living trust would not have to pay them. The new trust code clearly resolves this: Your living trust assets are not exempt from your personal creditors while you are living, nor from the creditors you owe as of your death.
By contrast, however, the trust code clearly affirms that if you create the right type of trust upon death for another person such as your adult child, the assets you leave in that trust are exempt from claims by your child’s creditors. This principle had developed in Illinois law under various theories but is now clearly stated in the trust code. Such a trust would also be exempt from his or her spouse, if they get divorced, but according to the new trust code, a court could order your child to pay child support from the trust.
So, whether you are motivated by the sense that you are a blessed steward of a piece of God’s creation and should pass it along in the best way possible, or you intend to dictate from the grave what the next five generations must do, this is one of those years when it is going to be critical to update your estate plan. Make sure you take advantage of all opportunities under the new Illinois trust code.
Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com.