5 Estate Planning Mistakes to Avoid

March 12, 2019 09:36 AM
 
Create a plan to overcome common obstacles

Estate and succession planning is complex. Yes, it will take hours of work and will never be complete, but your investment will pay dividends and set a path forward for your farm.   During the process, try to avoid these common mistakes, advises Polly Dobbs, owner of Dobbs Legal Group and a member of the Farm Journal Legacy Project Advisory Team.

1. Do nothing because your net worth is under the current estate tax exemption. “We are in a window where the estate tax exemption is $11.4 million per person, so a married couple can pass $22.8 million of assets free from federal estate tax, which is unheard of,” Dobbs says.

In 2026, the estate tax exemption reverts to around $5.5 million per person or $11 million for married couples. But, Dobbs says, any law can change at any time.

2. I want to treat all my kids exactly the same. “As a parent, I get it,” Dobbs says. “You don’t want to play favorites, everybody should get exactly the same, but that just does not work in my world.”

Fair does not mean equal, Dobbs says, so you should change your mindset. Start thinking about who should own or control which assets. What should your overall plan look like, and who will be involved?

“Your children are different, and it’s OK to treat them differently,” Dobbs says. Also, don’t assume your children will just magically figure out estate planning when you die. It’s your responsibility to draw a map, she says, so tell your kids what to do, and be responsible for your legacy.

3. I’m just going to title my property jointly with my kids and their spouses so it automatically passes at death. While jointly owned property does avoid probate administration because it automatically passes to the survivor at death, Dobbs says, that’s not a good reason to structure joint ownership.

“We shouldn’t let fear of probate drive us to do things like slap names on titles and create joint ownership,” she explains. “It also creates a taxable gift when you just start adding names on property when consideration hasn’t been given.”

Adding names to deeds creates numerous complications. This is especially true if your children get divorced. “If there’s a future divorce, their name is on the deed, and it’s getting divided up by the divorce court judge, which means you’ve lost control over it,” Dobbs says.

4. I’m just going to sell my last crop, have an equipment auction and retire happily. Not likely. “There will be a huge income tax liability at that point because farmers never pay income taxes,” Dobbs says. “They sell this year’s grain next year and they deduct next year’s expenses this year. They buy shiny equipment in December and then depreciate it all. But all that creates a giant wave that eventually is going to crash. It’s going to be a pretty nasty tax hit.”

Don’t end your career on a terrible tax note, she warns. Don’t be overwhelmed by all of the tax techniques; you just have to ask for help.

“When it’s time to retire, call somebody for advice,” she says. “Don’t think the only thing to do is sell your grain, have an auction and take the tax hit because there are things available that can help with that.”

5. I’m just going to copy my neighbor’s estate plan. A succession plan is specific to each family, and a team of succession planning professionals need to know everything from family history to previous conflicts to a farm’s complete lineup of assets.
“A family’s goals should drive the planning,” Dobbs says. “You can’t just copy what your neighbor did and think it’s going to fit your farm. There is no cookie-cutter approach to this kind of planning,”

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