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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
  • Vehicles
  • Livestock
  • Machinery
  • Crops
  • Operating loans
  • Mortgages

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 planning process.

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?

Business Entities

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 Management

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!