Talk Over Your Estate Plans - Now!

Why is it easier to learn the serial number of the unknown soldier than it is to learn about your parent's estate plan? How can children and parents farm together for twenty or thirty years yet not discuss how they will handle the estate? How can people know they aren’t going to get out of this life alive, yet fail to make out a will? It is one of the mysteries of life that happens all the time.

I consulted with Michael Barron, an estate planner in Bismarck, North Dakota. He shared his observations of farmers and estate planning.

Farmers typically wait until they have one foot on a banana peel and are starting to slip before they figure out it is time to get started. The average age for people to get serious about estate planning is between 67 and 72. Considering that the average life expectancy of a male is 73, that is late, sometimes tragically so for the family.

There are good financial reasons for starting early. The amount of equity that can be transferred through gift giving has annual limits. This takes planning. Also, disposing of assets in less than 36 months before entering a nursing home creates financial liabilities.

When equal is not fair. Giving land equally to all the offspring creates a debt load the farming children probably cannot handle. With necessary new mortgage payments, lease agreements or buyouts, their ability to manage their debt is compromised. One rule of thumb is that farmers need at least a 55 to 60 percent equity position to stay in business.

For the farming children, an equal division of property is an emotional slap in the face for the devotion and commitment they have had with their parents. They see their hard work and commitment toward building the family farm count for nothing. They have stayed and cared for their parents and made their parents' retirement years possible financially - sometimes even to the point of providing physical care when their parents' health declines.

Not only that, the farming children are saddled with partners whose interests in the farm are bottom line considerations. The goals of the non-farm heirs are short term and about liquidity, not long term investment and cash flow. A generation ago, brothers and sisters often took a passive stance and made it easy for the farming children to farm. The current generation is different. The dentist, the lawyer or the schoolteacher want what has been given to them.

Besides issues of risk, stress and expense of farming, a potential conflict between siblings may emerge on how much the farmer's labor is worth and what are his family's requirements for living expenses. Would you want your brothers and sisters setting a value on what you do or what standard of living you have?

Business partners should choose one another, not be forced on each other.

Solutions. This dilemma can be solved in advance by selling and deeding property as you go - creating ownership for the farming heirs that is independent of the estate. In the estate, core farm business assets should be given to the farming children while the non-farm assets can be distributed to the non-farm heirs. This would include insurance, savings, trust finds, vacation homes and other investments that are relatively liquid. This helps keep the farm intact while having a fair inheritance for the other children.

Where land is unavoidably a part of the inheritance, buy/sell agreements with fixed terms and specific dates provide a reasonable time frame for farming heirs to take over from siblings and a way for non-farming heirs to access their inheritance.

Figuring out what is fair without discussion with all the involved parties is difficult. By avoiding the issue parents create situations that cause conflict or hard feelings after they have gone. Quarreling about the estate ruins what was otherwise a legacy of family love and togetherness.

Not having a will or an estate plan at allis grossly unfair. Your own desires nor your children's needs and wishes will be considered. The state will decide along predetermined lines who will get what plus it will take its sizeable share.

In an era of remarriages after divorce and widowhood, it is extremely important to spell out your wishes. Your children from the original marriage could be emotionally and financially devastated by your lack of clarity and action. A prenuptial agreement about the estate will help in these matters.

Tips on estate planning.

• Start early. Revise your plan as circumstances change. If you wait too long, the task becomes daunting and the waiting risky.

• Be open about estate planning. Get your children's ideas and feelings. Ask them about their ideas and special requests. This goes for heirlooms, keepsakes and personal effects also. See where there are conflicts.

• Have a family meeting. When you have a-close-to-final document, gather the children together and explain it to them. Hearing your rationale from your own lips will help them understand and be at peace. They will know that these were truly your ideas - not those of a sibling with undo influence.

By asking for ideas, you are not making commitments, just looking for feelings and problems. Work out all the objections you can. Conversation may be awkward and stressful, but vital to future relationships among the siblings.

• Keep all the children informed of any updates or changes you are making. Fairness is whatever you decide and can successfully explain and justify to your children.