When you draft your estate plan, your plans and wishes should reflect what you want if you died tomorrow. But, of course, after you die, circumstances could change — and your family might wish you’d had a different plan.
While your plan can rule your farm from the grave to a certain extent, it should be flexible, and you can take a few key steps in your estate plan to accomplish this.
In your will or trust documents, you name a power of appointment. This means you grant power to an individual to name recipients of all or a portion of your money and property in the future.
“This power can be wide-ranging or restricted,” says Roger McEowen, agricultural tax expert at Washburn University School of Law. “The two categories are general power of appointment or special power of appointment.”
Here are the differences:
- General power of appointment provides the donee/holder broad power to give away the decedent‘s property to anyone, without restrictions.
- Special power of appointment gives the donee/holder power to give the decedent’s assets to a select group of individuals or groups.
FOCUS ON FLEXIBILITY
The key difference in the two powers is the level of flexibility, says Polly Dobbs, attorney and owner of Dobbs Legal Group in Peru, Ind.
General power of appointment can have a time and a place in some documents, Dobbs says: “They are really for the Ward and June Cleavers of the world that have only been married to each other; they want to keep things super simple.”
General powers cause the assets subject to appointment to be included in the power holder’s estate for taxes.
Whereas a special power can be broad or narrow, within a person’s comfort level and does not cause inclusion in the power holder’s estate.
“For instance, if your spouse lives for a few more decades and sees who’s on good paths or who’s addicted to meth, the spouse could have a special power of appointment to make adjustments to the ultimate plan,” she says.
BE SPECIFIC
Typically, Dobbs says, a special power is limited to descendants. The power holder can pass your assets to children or grandchildren at different ages or keep them in a continued trust or even pass to a charity. This gives your plan the ability to reflect new law changes or fluctuating asset values.
“If the laws change and it turns out the kids are rich in their own right, where it would be terrible to dump a bunch of acres on their balance sheet, a special power can choose to keep them in the trust for the benefit of the super-rich child without exacerbating their own estate tax problem,” Dobbs says.
If you chose a special power of appointment, McEowen suggests you be specific in the drafting language and choose the donee carefully.
Sara Schafer uses her Missouri farm roots to cover crop management, business trends, farmland and more.
