Getting your affairs in order
GARNER – Estate planning has always been important and the recent appreciating value in the price of land has made it more so. It is an old saying that “Farmers live poor and die rich,” and it is most likely repeated during sessions of estate planning.
With higher valued estates from the increased value of land and changes in the amount exempt from estate taxes, estate plans need to be reviewed or possibly rewritten to reflect the current laws.
These opening assessments came from Erin Herbold, a staff attorney with the Center for Agricultural Law and Taxation at Iowa State University, and Kelvin Leibold is a field specialist with ISU Extension’s farm management. They presented a seminar in estate planning at the Hancock County Extension office to approximately 60 people.
Herbold and Leibold said there are three sizes into which estates can be divided according to taxable value. Small estates are under $5 million. Medium estates are between $5 million to $7 million. Large estates are over $10 million.
Estates under $5 million need to focus on income tax issues, asset protection and possible Iowa inheritance tax with non-lineal (other than parents and children) heirs.
Estates over $10 million need to consider reducing valuation, a gifting program, charitable donations and other tools suggested by estate planners.
The seminar introduced the audience to legal principles that apply to estate planning.
The presenter told the importance of having an inventory and setting goals of the estate plan.
The next step is making decisions to implement the plan and steps to settle the estate.
Having an estate plan is important because Iowa has a plan in place for anyone whose dies without one. The legal term for a lack of estate plan is intestate.
Dying intestate can result in property being transferred to the wrong people without a chance to reduce the applicable estate taxes and probate expenses.
The disadvantages of being intestate are inflexibility in the distribution of income, continuity of the farm business may be jeopardized, minors will be put under conservatorship and there will be additional costs, delays and taxes.
Herbold and Leibold said an inventory needs to be made to establish value and type of ownership or co-ownership.
Determining ownership is important because ownership or title takes precedence over the will.
Financial statements are part of an up-to-date inventory. They have the importance of listing assets and liabilities as of a specific date.
Goals need to be established under different scenarios. These scenarios will include death of either spouse, death of both spouses and possibly the entire family.
These scenarios will be used to determine management of assets, property and investments. These may be used as income, sold, or able to participate in management. If there are minor children, a guardian will need to be named.
Estate decisions can involve parents, asset owners, business partners, heirs, in-laws, attorneys, financial advisors, insurance agents and lenders.
Assets can be transferred to reduce an estate’s size. This can be accomplished by selling or gifting.
There are tax implications that need to be understood and a three-year-look-back rule applies to assets that are transferred.
An estate is settled to distribute the property, provide a clear title to real estate and pay taxes.
During probate, the estate is inventoried, disagreements are settled, good titles are obtained, debts and taxes are paid and the property distributed.
An executor is named and is charged with these duties.
Handwritten wills are called holographic wills and under Iowa law are not valid, said Erin Herbold. A valid will has to be made by a competent person and witnessed. Handwritten modifications do not have any standing.
Tax rules on basis have changed and Herbold and Leibold explained the rules change from 2010 through 2013 when the rules are scheduled to return to the old rules.
Once a plan is updated, documents will include a will and durable power of attorney. Property will be titled correctly and there will be plans for non-titled property. The list of beneficiaries will be current.
When estate plans are being made, it is a good time to include plans for health care, health care insurance and living wills.
More information can be found at Iowa State’s Center for Ag Law and Taxation website at www.calt.iastate.edu.
The website covers several areas of law with estate planning as one of the choices.
A 56-page booklet is available for downloading to introduce a person to both the problems and the tools that are involved in estate planning.
An article titled “Common Estate Planning Mistakes” is also available on the CALT website.
Contact Clayton Rye at email@example.com.
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