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3 reasons why estate plans fail

Estate Plan Edge: Know everything your plan can do, make sure assets follow the plan, and don’t put it “out of sight, out of mind.”

“What is the biggest mistake that farmers make in estate planning?” Over the decades, my answer to this question has evolved. In a way, the “biggest” mistake will be case-specific. The worst mistake you could make will be different from that of a neighbor. For one person, it might be leaving affairs in such a mess that the family is forever broken. For another, it may be enabling a child with life-debilitating habits to irrevocably destroy himself or herself. Another worst could be leaving your estate subject to multiple levels of taxation.

But who is going to be guilty of that? It seems the very question is a way of setting the bar as low as possible. If you care about your family and your farm, and you work with competent professionals, you should be aiming to achieve the most favorable possible results.

So instead of “What is the biggest mistake you can make?” let’s rephrase the question to hit closer to home and set the bar much higher: “Why do most estate plans fail to do all the good they could?”

Looking back at it someday, your estate plan fully succeeded if it did for you and your family all the good that an estate plan could. By that standard, there are three common reasons most estate plans fail:

1. You don’t know what’s possible. For example, if you don’t know that you can leave your farm to your successor with complete flexibility and management control, yet protected from life’s potential catastrophes — lawsuit or divorce, for instance — and future estate taxation, then you will not design your plan that way. If you never heard that you can give your family far more than the estate tax limit of $4 million (and a married couple more than twice that) tax-free, you won’t plan to do so. Unless you learn about these benefits, your plan certainly won’t provide them.

2. You don’t understand asset ownership. When you sign a living trust saying how you want your estate to pass at your death (to whom, with what protections, tax advantages, etc.), then it is essential that your farm, your business, your grain, your equipment, your savings, your life insurance, your home and your vehicles are all owned by or payable on death to your trust.

On the other hand, if you write a will that says how you want your estate to pass on death, then all assets must be titled so they will go through probate on death, to follow the provisions of the will.

In either case, the plan fails if property or accounts are owned as “joint tenants with right of survivorship,” for instance. Such ownership defeats the trust or will, and heirs will fail to benefit from the terms of the trust or will.

Some people suggest that not all assets should follow the trust or will. But why complicate your affairs for your heirs? Keep things simple and straightforward: Make one plan for your entire estate. That plan, likely a living trust, will direct who gets what — which assets go to specific heirs, with what control and protection. Then make sure all assets are titled so to follow that plan.

3. You don’t pay attention. This can be simply expanding on the first two reasons. Update your plan periodically based on the latest available information, because all the good your plan could have done a few years ago is probably not all the good it could do under new laws and circumstances. Second, if your plan goes “out of mind,” then you will forget to properly title the next land, car, life policy, etc., and consequently, some of your estate will not follow your estate plan.

But reviewing your estate plan at least annually also assures that you don’t miss important changes you should make: Are there new grandchildren, name changes or different participants in the operation? Annual reviews help prepare you for what will happen when you or your spouse becomes disabled, and can inspire important discussions with your family about their roles. Are the successors you had in mind continuing to prove able and ready?

Plan proactively so your plan will do all the good an estate plan can for you and the people you love.

Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com.

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