Gathering Information about Assets
The most important step in the estate planning process is gathering information
on all of your assets and debts. This includes listing out every asset
you own and debts in your name.
These assets and debts may include the following:
- Each parcel of land
- Bank accounts
- Retirement Plans
- Life Insurance/Annuities
- Operating loans
As you gather this information, it assists you in setting up a distribution
plan. It also assists you in determining what your goals are in the estate
Should your children be provided for equally? Who should pay the debt?
Should one child have the option to lease or purchase an asset upon your
death? These are all important questions that must be answered.
For farming families, distinguishing between farm and non-farm assets will
be important for many reasons. First, do you want your distribution plan
upon your date of death to say that farm assets go to one child, and non-farm
assets go to another child? Is there a way that you can come up with a
"fair" (but not necessarily "equal") distribution
plan? Are your assets currently balanced in such a way that your estate
can take advantage of the current agricultural use valuation (CAUV) election
upon your death?
In addition to identifying farm and non-farm assets, you will need to give
business entities special consideration. A business entity can assist
in keeping the land together AND within your family upon your death. Having
the majority of your real estate distributed (now or upon your death)
to an entity such as a Limited Liability Company (LLC) could assist in
stopping the unwanted sale of the land.
For example, if you have four children and you want the land to be kept
in the family with all children being co-owners, distributing all of your
land equally to all four children could result in an unfortunate sale
if one child (or that child's spouse) decides he/she no longer wants
to be an owner. By distributing the asset to an LLC, then each child is
not an owner in each separate piece of land. Each child would instead
be an owner in a percentage interest of the LLC, resulting in greater
protection from a forced sale of the real estate.
Determine a Distribution Plan
Often times the most difficult decision in estate planning is to determine
how your assets will be distributed upon your date of death. You can develop
this distribution plan by asking yourself various questions.
Consider these questions when forming a distribution plan:
- Will all children be given an "equal" share of assets?
- For farming families, should you identify certain parcels of land, farm
machinery and other assets to go to different beneficiaries and not worry
about the distributions being exactly equal?
- For farming families should the on-farm child's share be more because
he/she helped you get to where you are today?
- Should one child's pro-rata share be made up with specific assets first?
- Should gifts made to a child during your lifetime be considered when making
distributions upon your death?
- For farming families, s if one spouse passes away, should the distribution
of farm machinery be made to a farming child upon the first spouse's
death, or only upon the second spouse's death?
- Who will pay any debt owed when you pass away? Should it come off the top
prior to distributions, or should it be paid by a beneficiary who is receiving
an asset with the debt already on it?
Once you have identified some thoughts on the distribution plan, you are
well on your way to having many decisions made within the estate planning process.
Options to Lease/Purchase & Rights of First Refusal for Those Families
Holding Real Estate
Any time you have real estate, you can structure your distribution plan
to meet the specifics of your family. For example, if you identify land
to be distributed to certain individuals, do you want a family member
to have the option to lease that property for a certain period of time
after your death? Such an option could be structured by stating within
your plan that your trustee/executor shall develop a long term lease on
the property in favor of that family member.
What about giving one child an option to purchase the land? Examples of
this could be that one beneficiary of your estate has the option to purchase
land that was owned by you. You could also distribute a tract of land
to one child, with a right of first refusal in favor of another child.
This makes it so if such beneficiary ever does decide to sell, he/she
must offer it to the holder of the right of first refusal first.
How to Handle the Debt
Any debt you have can be handled in various ways. The debt can be paid
out of the pot of assets prior to any distributions being made. Debt also
could be distributed to a certain beneficiary who receives an asset with
that debt on it. Many families choose to purchase life insurance policies
and make a trust the beneficiary so the assets are more liquid and there
is then cash to pay down the debt. Debt could prove to be an obstacle
for your desire to keep assets in the family.
Probate is nothing more than the re-titling of assets that do not already
pass to a beneficiary. Probate is a public process where a judge oversees
the re-titling of assets. Often times, it is desirable to avoid having
your assets go through probate upon death. If you have a more difficult
plan with options to lease/purchase or rights of first refusal, it is
better to have a trustee who serves outside of court to lead the process.
Your assets can always be re-titled to assist in probate management.
Implement Your Estate Plan
Once you have gone through the checklist above and met with your attorney
to discuss other possibilities of provisions to go within your plan, you
are well on your way to developing a plan for the future. This can be
done rather quickly. Many times your attorney can have documents ready
for you to review and sign approximately one to two weeks after the first meeting.
Pursue a Secure Future with a Union County Estate Planning Attorney!
After you implement your plan, you should share your plan with your beneficiaries.
This could reduce hard feelings or arguments upon your date of death.
This allows you to discuss your plan with your beneficiaries, and also
discourages those hard feelings toward you or your other beneficiaries
upon your date of death. It is great to have assets to pass on when you
die, but sometimes determining how to distribute those assets is the hardest
decision. For peace of mind and the future of your family, it is best
to get the plan down in writing, and then amend it in future years as
you see fit.
Begin a free case evaluation with Bridges, Jillisky & Streng,
LLC by calling (937) 403-9033!