Having a plan in place that clearly outlines what happens to your property when you die is especially important for farm and ranch families. The quality of your estate plan can determine whether your property passes smoothly to the next generation, or if your operation dies when you do.
An estate plan is more than simply listing where your property goes when you die. A comprehensive estate plan prepares for future disability, healthcare, taxes and property management.
Yes, having a will is better than having nothing, but an optimal estate plan generally requires more. Below are 10 “tools” commonly used by estate planning attorneys to achieve their clients’ goals. These tools are in no particular order and are not a “one size fits all.” You likely need a combination of them to best fit your unique situation. Talk to an experienced estate planning attorney to create a plan that best suits your needs.
1. Wills
A will, also referred to as a last will and testament, is a legal document outlining how your assets are to be distributed after your death. You may appoint an executor (personal representative) to manage and distribute assets in accordance with the instructions of the will.
2. Trusts
A trust is a legal entity designed to hold and manage property according to specific instructions set out by the creator of the trust (the settlor). Trusts can be used to manage complex property, protect beneficiaries, provide privacy and flexibility of asset distribution, avoid probate and provide tax benefits.
A trust divides ownership of property into two parts: legal title and equitable title. The settlor transfers legal title to a trustee who is paid a fee to manage the property in accordance with the trust’s instructions. The settlor transfers equitable title to the beneficiary of the trust. The beneficiary receives the benefits of the trust property subject to the terms of the trust.
There are many types of trusts. Inter vivos trusts are trusts created during your lifetime. Testamentary trusts are created in your will and become effective after your death. Trusts can be made revocable or irrevocable. While revocable trusts offer the flexibility of changing them at any time, irrevocable trusts can provide asset protection and tax benefits. State laws provide for several other types of trusts. If you are considering a trust, talk with your estate planning attorney about which type of trust is right for you.
3. Durable power of attorney
A power of attorney allows you (the principal) to appoint an agent to manage your property on your behalf. It is important to select someone who has the skills necessary to effectively manage your property and finances. A “durable” power of attorney will remain effective after you become disabled or incapacitated.
4. Medical power of attorney
This legal document allows you (the principal) to designate someone as your agent to make health care decisions. A medical power of attorney will often state that it takes effect when you become unable to make your own health care decisions. Before signing it, discuss this document with your physician to ensure that you understand the nature and range of decisions that may be made on your behalf.
Federal law makes most health information confidential and prohibits health care providers from discussing your medical information with others. However, a HIPAA authorization can be used to authorize your health care providers to discuss your health condition with your agent and grant your agent access to your health records.
5. Advance directive for health care
Also called “directive to physicians,” this legal document is designed to help you communicate your wishes about medical treatment at some time in the future when you are unable to make your wishes known because of illness or injury.
People use this form to express their preferences regarding life support. You are encouraged to discuss your values and wishes with your family or chosen spokesperson, as well as your physician. Your health care provider may provide you with various resources to assist you in completing your advance directive.
Taking the time to complete this document specifying your wishes regarding life-sustaining treatment will relieve your loved ones of having to make these difficult decisions for you.
6. Guardian nomination for minor children
If you are a parent of minor children, you can nominate a guardian to care for them in the event of your death or incapacity. You may designate a guardian for your minor children either in your will or in a separate written declaration. It is crucial that you speak with the person you would like to nominate before naming them. This will ensure that they are willing and able to take on such a responsibility.
7. Declaration of guardian in the event of later incapacity or need of guardian
In the event you become incapacitated, a guardian may need to be appointed for you or your estate. This document allows you to designate someone as your guardian if the need for a guardian later arises. If you become incapacitated and have not previously designated someone as your guardian, the court will appoint someone for you – perhaps someone you would not have wanted. If you have appointed someone as your agent through a power of attorney, talk with your lawyer about how these two legal documents work together.
8. Life insurance
Life insurance is an estate planning tool that allows funds to be made available quickly to a designated beneficiary. This can help loved ones substitute for lost income or contribute to estate taxes after your death. For younger clients, life insurance is especially important, is typically very affordable and can help protect families against unexpected losses. Premiums can vary significantly based on an individual’s age and health.
9. Transfer on death
A transfer on death deed is a legal document that allows a property owner to designate a beneficiary who will inherit real estate upon the owner's death. Unlike a will, the property transfers automatically and does not have to go through the probate court. Some prefer this tool because of its instantaneous nature.
Some states provide a similar transfer with regard to vehicle ownership. The Texas Department of Transportation has a form available that, when completed properly, transfers ownership of your vehicles upon your death. Note, however, that your beneficiary may be required to submit an application for title within a specified number of days after your death. Discuss these requirements with your attorney and consider making your beneficiaries aware of them ahead of time.
10. Beneficiary designations
When you open a bank account, you are often given the option to designate a “pay on death” beneficiary. The beneficiary you name does not have any rights to the account during your lifetime, but will receive the funds in the account upon your death. Look for similar beneficiary designations on your 401(k), IRA or other financial accounts. These designations are also considered “non-probate” transfers.
Creating an estate plan can seem intimidating, but having something in place is critical, especially for families in agriculture. Remember, you can change your estate plan at any time, so it’s never too early to start.
Once your plan is in place, review it often. Life changes. Loved ones pass away, babies are born, people get married, divorced, property is bought and sold. The law changes. Revisiting your estate plan often is a great way to ensure that your plan reflects your current preferences.
This article is provided for informational purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
