Real Estate

Legacy Planning for Family Farms, Ranches, and Businesses

An inheritance is more than money or property, especially when it comes to family farms, ranches, and businesses. Many survive for multiple generations, says the Woodward News in the article “Plenty to consider in legacy planning,” but it takes planning.

Knowing that one day your grandchildren, and hopefully, their children, will walk the land their great-grandparents did, and take the same satisfaction in knowing that the work they do, is a part of our country’s economy. Every family’s situation is different but one thing they all share in common, is that succession goals need to be evaluated critically, even though there is great emotion involved in passing on a legacy.

Dividing assets, sharing control and management decisions and transferring ownership are all things that must be examined and formalized as part of a succession plan.

For starters, determine the overall goal. Every family’s goals are different. Should assets be held for end-of-life-care for aging parents, passed on to children, donated to charity or are they needed to ensure the successful transition of the business to the next generation?

People work hard their whole lives to accumulate assets, so it’s important to have a legacy plan.  In this way, everything you’ve worked for is preserved for the next generation or available for your needs as you age.

In 2019, gift and estate tax exemptions are up dramatically, but strategic planning still needs to be done.

For farm families, the Farm Journal Legacy Project offers printable downloads, including a succession planning action guide, family meeting agenda, conversation starters and a goals clarification worksheet.

Family meetings will need to tackle some topics that may benefit from the presence of an estate planning attorney, who is experienced with family farms and succession planning.

  • How will the transfer of property, including farm equipment, property, and livestock, be done with minimal taxes due?
  • How can the non-farming members of the family receive their fair share of their inheritance, without taking away valuable resources needed to keep the farm or ranch going?
  • What resources will be available for the older parents to live on when they retire?
  • Can the farm support multiple generations?

Succession planning that works best, begins long before the farm family is thinking about retirement. Determining roles and responsibilities and setting accountability for those roles must start happening long before the oldest generation steps away from the day-to-day operations of the farm or ranch.

Reference: Woodward News (Jan. 2, 2019) “Plenty to consider in legacy planning”

Can I Give Real Estate to a Charity in my Estate Plan?

Many nonprofits are now encouraging donors to make gifts of non-liquid assets, like real estate. If it’s thoroughly vetted and properly structured, real estate gifts can help donors meet their financial planning and philanthropic goals, and at the same time give charities a new source of funding.

Real estate holdings account for a major part of the assets in U.S. households. However, just a small proportion of charitable contributions are land or buildings. Many individuals with surplus real estate may want to consider donating their appreciated property to charity, instead of selling the property themselves. That’s particularly true, if they want to minimize taxes or generate retirement income.

The fact that many real estate gifts are more complex and costlier for charities to process and manage than cash donations, means that it’s important to think about donating to charitable organizations that have developed a clear set of gift acceptance policies and procedures in place. As a prospective donor, you should look for policy guidelines that detail the kinds of properties that will and won’t be accepted. Perhaps the charity only accepts commercial or undeveloped land.

It is also important to look for the types of estate planning structures donors are allowed to use, when making these gifts. These can include charitable remainder trusts, charitable gift annuities and retained life estates. You should also see if there are any stipulations on the charity’s acceptance of properties that come with mortgages or other risk factors.

Once a real estate gift has been approved on a preliminary basis by a charity, the donor may then be required to provide additional information about the property. This “due diligence” phase typically entails a title search, assessments of the local market and environmental conditions, a professional inspection and a site visit by the organization’s representative. It is customary for the charitable organization to defray the costs of conducting these studies.

After the due diligence has been finished, and the charity has agreed to accept the gift, the donor will be notified of the results of the investigations, and of the plans for how the final transfer of the property will take place.

This type of donation can offer many advantages to donors, including generating income, deferring or lowering taxes and decreasing the expenses of property maintenance. Be sure to consult our estate planning attorneys to discuss real estate contributions to charities.

Reference: TC Palm (November 8, 2018) “Donation of real estate is nice form of charitable giving”

Getting Married Again? Protect Your Spouse and Your Children

“With the trend toward increased remarriages later in life, one spouse may prefer living in their own home of many years with the new spouse.”

One of the goals in estate planning when one spouse moves into the home of another spouse, is to ensure that if the owner spouse dies first, the new spouse will be permitted to remain in the home, while preserving the value of the home for the owner spouse’s children. It’s not always an easy situation to resolve, according to an article in the Times Herald-Record, titled “How to preserve your home’s value when remarrying,” but with good planning and an estate plan, it can be done. …

Women and Divorce: A Financially Secure Retirement?

This article from Money, “This is The Single Best Way Divorced Women Can Secure a Successful Retirement,” begins by noting the frequently referenced “divorce gap.” This was documented in 2008 by a professor at the University of Essex, who found that women who divorce see their income fall by more than a fifth, while the men they divorced see their household income rise by about a third. A more recent study offers more nuanced scenarios, with a more positive outlook. …

Push Back on Elder Abuse with Good Estate Planning

A Jamaica man was charged with tricking his 101-year-old neighbor into handing over the deed to his house last week. A trio of Maspeth thieves pleaded guilty to posing as grandchildren and even recruiting kids to rob senior citizens’ homes in July. In Flushing, a man allegedly begged an elderly victim to wire him $41,000 to post non-existent bail in the Dominican Republic. These are just three out of many elder abuse cases that have made their way to the Queens (New York) County Criminal Court in recent weeks, reports the Queens Daily Eagle in its article “Nuanced Directives, Power of Attorney Can Stem Elder Abuse.” These cases of elder abuse, fraud, and predation are reflective of a far larger problem. …

Are You Sure Your Kids Want the Cabin on the Lake?

“In the coming decades, baby boomers in the U.S. are expected to transfer an estimated $30 trillion in assets to subsequent generations. For many families in Minnesota, that will include the family cabin.”

One of the key markers of summer in many areas is crowded roads, as folks head out of the city to their summer retreats, like the Outer Banks of the Carolinas or the Berkshire Mountains. They know it’s summer in Minnesota, when the roads are filled with families headed to lake cabins. The tradition may not last another generation, according to MinnPost’s in “The uncertain future of cabins in Minnesota.”   …

Make Sure Your Will Describes Your Property Accurately

Accuracy is important when making a will. You want to be as clear as possible when identifying your property and the people to whom you wish to leave it. For instance, if your will says, “I leave my son my car,” and you have two sons and three cars, you have not clearly expressed your wishes. Such ambiguity can ultimately lead to costly, unnecessary litigation between your family members as they struggle to understand what you meant.

No Estate Tax, No Worries?

Legal Description Helps Court Divide Property Between Niece, Nephew

Even when a court determines that your will was sufficiently clear, dissatisfied family members may still try contend otherwise. Recently, a Wisconsin state appeals court addressed just such a case. This lawsuit revolved around a will that contained a technically inaccurate, though legally sufficient, description of the deceased woman’s real estate.

Timeshares and Living Trusts: Funding Issues

The weather this time of year inspires many to contemplate warm, sunny escapes. For some, this involves a timeshare property. While timeshare rights may not be as valuable as outright ownership, it is nevertheless worthwhile to consider your timeshare in planning your estate. If you have a living trust, this means taking the necessary steps to ensure that you’ve properly funded your timeshare holdings into your trust.

For many Wisconsinites who own timeshares, the timeshare property is located outside the state. In these types of situations, using a living trust as part of your estate planning can provide significant benefits. With a properly funded living trust, you may avoid probate on all your funded assets. Without it, your estate must undergo the probate administration process in each state where you own property, which would include Wisconsin, along with the state where your timeshare is located, in addition to any other states where you have assets.

This could place your loved ones in the expensive and time-consuming position of managing probate both in Wisconsin and some distant jurisdiction like Florida, Arizona or Hawaii. While timeshares may have limited value, and sometimes may be dealt with using a summary probate process, the process is still often expensive. Cumulative costs (including attorney’s fees) can total into the thousands of dollars for each probate process.

How Do You Own Real Estate? Let Me Count the Ways.

Wisconsin law defines a number of ways an individual can own and distribute real estate. Each method offers its own unique set of advantages, and may be more or less valuable to you depending on your circumstances. Having a basic understanding of these may offer real value to you in deciding whether to keep or change the current ownership structure of your property.

Some ways are: fee simple, joint tenants with rights of survivorship, joint marital property, tenants in common, life estate, mineral rights, easement, in trust, for a term of years, ground lease, and they go on.

One well-known method is joint tenancy with right of survivorship. Under this arrangement, each co-owner possesses an equal share of the property and, upon the death of either co-owner, the other takes full ownership of the property automatically. On the “plus side,” this arrangement is simple, low maintenance and, in most situations, effective for avoiding probate (on that property). This arrangement also has downsides, in that the property may be at risk of litigation by the creditors of either co-owner and a risk exists with regard to accidental disinheritance of some family members, particularly children of a previous marriage.

Many people own real estate as “tenants in common.” This means that they all share in ownership of the property like joint tenants, but if one of them dies, their share does not go to the other owner(s). The dead person’s share is transferred according to that person’s estate plan (will or intestate succession).

Another method available is the transfer-on-death deed. A transfer-on-death deed allows you to name a beneficiary who takes ownership of the property upon your death, but has no present ownership interest in the property. This means that you retain full control of the property during your lifetime, and you can change (or even revoke) the beneficiary designation as often as you want as long as you are alive and competent. This method also generally avoids probate. Similar to the joint tenancy with right of survivorship, transfer-on-death deeds can sometimes lead to unintentional disinheritances, especially if you change your will or trust but overlook making a companion change to your transfer-on-death deed. Additionally, the beneficiary has no legal authority until you die. So, if you become mentally incapacitated, and you have no durable power of attorney for finances, you will need a guardianship established so that someone may continue to manage your property for you.

‘Pocket’ Deed : Maybe a Bad Idea

As people seek out ways to avoid the expense and delays that may be associated with probate administration, they may latch onto some “creative” methods for accomplishing this goal. One such method is a technique often called a “vest pocket deed,” or just “pocket deed,” and while it may seem extremely advantageous in terms of both avoiding probate and maintaining total control during one’s lifetime, it is actually filled with serious risks.

A pocket deed is a colloquial term referring to a deed that the property owner executes during their lifetime, but keeps in their figurative (or, in some cases, literal) vest pocket until death, and only after which is the deed recorded with the Register of Deeds. The intent behind such a method is usually two-fold. One, the method will avoid probate, because the owner signed the deed transferring the property within his/her lifetime, the property legally was not part of that person’s estate at the time of death, meaning that property was not subject to probate administration.

Two, the method offers the original owner total control, because no one recorded the deed, the relevant public records continued to show the original owner as the current one, and they could continue to manage and control the property as if the deed did not exist. If the owner changed his mind regarding any aspect of the transfer, he could simply destroy the deed and nullify the transfer.

The method contains may potential dangers, however:

Your continued control may not be guaranteed. If someone discovers and records the deed, then the transfer becomes effective immediately and the person to whom you transferred the property becomes the record owner of the property, and may chose to sell the property, mortgage the property, or evict you.

The pocket deed may cause problem for your loved ones. A possibility exists that the potentially long gap in time between execution, delivery and recordation may create a cloud on the title on the property. That means that title insurance companies may not write insurance for the property which, in turn, makes your transferee’s title to the property not marketable unless they engages in a legal proceeding to clear up the cloud on the title.

The pocket deed may cost your loved ones money. If the person to whom you leave the property ultimately sells it, they will pay more in taxes as a result of the pocket deed. The pocket deed means the transfer was legally one that occurred during your lifetime, not upon your death. As a result, your transferees will not receive a full “step up” in tax basis when they receive the property, which in turn, means that the amount of capital gains taxes they will owe upon the sale of the property will be higher than if they had legally received the property at the time of your death.

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