Top Estate Planning Mistakes Farmers Make - Part 2
Mar 09, 2012
Continuing our post from yesterday:
- "I am worth less than $5 million, so who cares?" Well, for one thing, your spouse might care. We have a new estate planning opportunity called portability which allows the unused estate exemption to be transferred to the surviving spouse. Let's assume you passed away in 2011 worth $3 million. If you did not file a return, the extra $2 million is permanently lost. So if your spouse dies in 2012 suddenly worth $7 million (especially if you left her everything in a "I love you" will), she would owe $700,000 of estate tax that she did not need to pay. Many farmers forget to include life insurance that they own in their calculations. They might have an estate of $4 million, but $2 million of life insurance. They think they are worth only $4 million, when they are really worth $6 million.
- Lack of Liquidity -- Farmers are great at creating nonliquid net worth (farmland, equipment, etc.), but not as good at creating liquid assets to pay estate taxes. Do you know how much your estate is going to cost your heirs and where the money is coming from? Will it negatively impact the farm operation?
- Proper Ownership of Life Insurance -- If you own or control the insurance, it is included in your estate. Have you considered setting up an irrevocable trust to own the insurance? This gets the proceeds out of your estate and provides liquidity for the estate or income to your spouse for his or her lifetime.
Read Part 1 and Part 3.