It’s a topic that isn’t fun to think about, but one that everyone should act on: estate planning.
Paul Goeringer, attorney and senior faculty and Extension specialist, University of Maryland, stated that in a survey published in 2023, 66% of Americans don’t have an estate plan – and 46% of people ages 55 and older do not have an estate plan.
Goeringer noted the information he provided is guidance and not legal advice.
The first step in estate planning is to determine where you are in the process and where you want to go. “Think about how to communicate with family members and any other heirs who potentially are a part of the situation,” said Goeringer. “If we’re dealing with a farm, think about what the business plan is, especially if other generations are coming into the operation.”
Estate plans vary according to family dynamics and consider how a business might be passed on to just one heir while taking care of all other heirs within the family. Heirs are direct descendants, usually children, but could also be nieces, nephews and other relatives.
“If we’re passing it on to another generation, there are now two generations working together,” said Goeringer. “It may work out perfectly but make sure there’s a plan – how is the farm going to support another party?”
He discussed the importance of power of attorney (POA) and its role in estate planning. “A business POA handles business affairs,” said Goeringer. “Paying your bills, making sure obligations are taken care of, managing assets to continue being profitable.”
The other POA consideration involves healthcare and who will make health-related decisions. This POA may include an advanced healthcare directive, which involves decisions about life support and other sensitive topics.
In most states, anyone of sound mind over age 18 can make a will. Goeringer noted that as people become older, the “sound mind” aspect can change, so timeliness is important.
“If you die without a will, the state has a plan for you,” said Goeringer. “It’s called intestate law – it’s state law that governs how your property will be distributed. Intestate law is designed to divide property among family members, typically the closest family members, regardless of the relationship you had.”
The law will look at the legal relationships among parties involved – a spouse during the process of a divorce is still treated as a surviving spouse until the divorce is decreed. Children are still treated as potential heirs regardless of their relationship with the person who passed away.
A holographic will is handwritten by the person the will is for and has not been properly witnessed. Goeringer said most states require the presence of two disinterested witnesses who don’t collect anything under the will.
“You can change your will at any time by drafting a codicil to the will,” said Goeringer. “The will is still valid but with amendments, or you can draft a new will. A will cannot be changed by writing in the margins or by crossing out names. If someone dies, you have to change it.”
Trusts are an option but not suitable for everyone. A trust is an estate planning tool typically used when the estate approaches federal or state estate tax limits. “Those with children or disabled family members they need to care for or family members who can no longer manage their own assets would want to have a trust,” he said. “A living trust is created during the trustor’s life and continues after the death of that individual. We do this to avoid property going through probate. While you’re alive, they’re revocable, but once you pass away, it’s irrevocable.”
A living trust can help avoid probate costs, which in most states are typically 1% to 2% of the value of the estate and paid to the court. “They allow for transfer of property in different states,” said Goeringer. “For folks who are farming across state lines and own property in multiple states, this is an easy way to get around probate and not have probate in each state where we own property. Just transfer the property through the trust document. It allows for better management of assets if you become incapacitated because there’s already a trust set up to manage that.”
The living trust passes property on much faster than the probate process.
Some reasons to not consider a living trust include the cost of setting it up, including attorney fees; the expenses can outweigh the benefits. A living trust can be contested by family members even with a no-contest clause.
“Probate takes time and it’s a public process,” said Goeringer. “Your will is put on file, and anyone can go to the courthouse to review the document. They’re very state-specific – if we put one together and have property in multiple states, we need to make sure it works within multiple states.”
He added that the attorney will know there is property in multiple states and the will can be written to work in all states where it will be probated.
A living will, also known as an advance healthcare directive, is a specific set of instructions someone has given that take effect when that person is no longer able to make decisions about their own health. This document typically specifies medical treatment the person does not want.
“This takes the burden off the family,” said Goeringer. “You’ve already made the decision. We can specify what we want in that moment and family members don’t have to think about it. They may not like the decision but they know their family member made that decision.”
Regarding federal estate taxes, Goeringer said the exemption is pegged to inflation and increases each year. For 2023, the exemption is $12.92 million for an individual and doubled for a couple.
“We are on the last three years of the current levels,” he said. “This is part of the large tax bill passed under the previous administration and can only be (in effect) for a limited amount of time. It sunsets in 2026 when it will revert back to prior law.”
Work with an experienced attorney who is familiar with agriculture and the structure of family farms to ensure the best outcome for all involved.
by Sally Colby