One farmer’s idea: Put our accounts in my wife’s name and put the land in our children’s names. The way I figure it, when something happens to me, they won’t need to do any of that courtroom mumbo jumbo that costs a few thousand dollars. What’s your take on this estate planning workaround idea?
The estate planning attorney in this gentleman’s neighborhood isn’t worried about this farmer’s plan to avoid the “courtroom mumbo jumbo.” It’s not the first time someone thought they could make a short-cut work, and it won’t be the last. However, as described in the article “Estate planning workaround idea needs work” from My San Antonio, the problems this rancher will create for himself, his wife, and his children, will easily eclipse any savings in time or fees he thinks he may have avoided.
Let’s start with the idea of putting all the man’s assets in his wife’s name. For starters, that means she has complete control and access to all the accounts. Even if the accounts began as community property, once they are in her name only, she is the sole manager of these accounts.
If the husband dies first, she will not have to go into probate court. That is true. However, if she dies first, the husband will need to go to probate court to access and claim the accounts. If the marriage goes sour, it’s not likely that she’ll be in a big hurry to return access to everything.
Another solution: set the accounts up as joint accounts with right of survivorship. The bank would have to specify that when spouse dies, the other owns the accounts. However, that’s just one facet of this estate planning hack.
The next proposal is to put the farm into the adult children’s names. Gifting the farm to children has a number of irreversible consequences.
First, the children will all be co-owners. Each one of them will have full legal control. What if they don’t agree on something? How will they break an impasse? Will they run the farm by majority rule? What if they don’t want to honor any of the parent’s requests or ideas for running the farm? In addition, if one of them dies, their spouse or their child will inherit their share of the farm. If they divorce, will their future ex-spouse retain ownership of their shares of the farm?
Second, you can’t gift the farm and still be an owner. The husband and wife will no longer own the farm. If they don’t agree with the kid’s plans for the farm, they can be evicted. After all, the parents gave them the farm.
Third, the transfer of the farm to the children is a gift. There will be a federal gift tax return form to be filed. Depending on the value of the farm, the parents may have to pay gift tax to the IRS. Because the children have become owners of the farm by virtue of a gift, they will not receive the tax-saving “free step-up in basis.” If they sell the farm (and they have that right), they will get hit with capital gains taxes that will cost a lot more than the cost of an estate plan with an estate planning attorney and the “courtroom mumbo jumbo.”
Finally, the farm is not the children’s homestead. If it has been gifted it to them, it’s not the parent’s homestead either. Therefore, they can expect an increase in the local property taxes. Those taxes will also be due every year for the rest of the parent’s life and again, will cost more over time than the cost of creating a proper estate plan. Since the farm is not a homestead, it is subject to a creditor’s claim, if any of the new owners—those children —have a financial problem.
We haven’t even mentioned the family business succession plan, which takes a while to create and complements the estate plan. Both plans exist to protect the current owners and their heirs. If the goal is to keep the farm in the family and have the next generation take the reins, everyone concerned be better served by sitting down with one of our estate planning attorneys and discussing the many different ways to make this happen.
Your estate planning goals are important. Using estate planning hacks to outsmart the courts might seem like a good idea, but may result in unintended consequences for you or your loved ones. We invite you to request a consultation with one of our experienced estate planning attorneys to determine the best way to make sure your goals and wishes are met, and your legacy is protected.