Nobody wants to think about death, but it’s something Polly Dobbs, an estate planning and wealth transfer attorney with Dobbs Legal Group LLC, thinks about every day.
“When I was a new lawyer, I was so nervous to say dead or death,” Dobbs recalls. “I was in a meeting with a partner and his client once when I stumbled over something and said, ‘in the unfortunate event you should pass away.’ After that meeting, the partner yanked me out in the hallway and said, ‘Stop stuttering. Just say when you die. It’s not if, it’s when.’”
She’s been dealing in death ever since, but she says that perspective allows her to serve her clients better.
“What if you got hit by a bus tomorrow?” Dobbs asks. “You should have a plan in place that fits today’s circumstances. If your grandson is playing with John Deere toys in the sandbox, let’s not create a succession plan that hinges on that grandson coming back to farm. Let’s have a plan in place that fits right now, in case you die tomorrow. If you don’t die and you get to see how those grandkids turn out and which direction their lives take, you can adjust that plan.”
People often think they can figure out their estate plan later – when they are older, richer, sicker, free from debt and the list goes on.
“Too often, people don’t have a plan, and they end up dying before they’ve got it just how they want it,” Dobbs says. “Have something that fits for today and dust it off as needed.”
What Should Drive Decisions?
When it comes to estate planning, Dobbs says there is no cookie-cutter-approach.
“You can’t copy what your neighbor did,” she says. “It has to be customized for your family, your facts, your assets, your goals, your family members and your farm.”
She often challenges farmers with tough questions like should your off-farm kids get bought out?
“Should they get bought out of equipment, improvements, grain bins, shops, shed and all of the silver things that we build on top of gravel lots to use in production agriculture?” she asks. “Do you feel like your off-farm heirs are entitled to a share of these operating assets? If so, fine. If not, that’s OK, too.”
Part of what Dobbs does is give permission to people to treat their children differently and to define their children’s inheritance.
“It’s not necessarily one quick check after an auction after your funeral,” she points out. “It is absolutely fine to treat your children differently. I preach over and over again that fair does not mean equal. There is no law that says the columns for your children must tally to the penny and be exactly equal with the assets they receive at your death. You’re aiming for a fair balance, and you define what is fair.”
Ultimately, she says, it comes down to peace of mind when you lay your head on the pillow. Do you have a fair plan in place?
Talk Now, Don’t Wait
Communicating the estate plan during your lifetime is very important, but it’s often the step that farmers fail to complete. She says transparency helps avoid entitlement.
“When someone thinks they’re going to get a certain amount of the value of your assets, they’re already calculating it and counting on it,” she says. “After your death, if the plan is different, that’s when the entitlement rears its head.”
She emphasizes the details must be defined by the farmer.
“A lot of my clients would rather put their head down and have the plan unveiled after death,” Dobbs says. “I understand that’s challenging. But it’s far better to have transparency and throw everything out on the conference room table so you can shine a light on it and talk about it.”
In addition to getting all the family in the room, Dobbs believes there should be more than one adviser at the table at a time.
“This is how you get the best plan, and you will always have a better plan if your advisers speak to each other,” she adds. “There is this falsehood out there that you need to stop your lawyer from talking to your accountant because that means they’re both charging you at the same time. I promise it will always be cheaper in the end, and a better plan, if your advisers talk to each other.”
Touchy Subjects
One of the sensitive subjects many farmers are dealing with today is the issue of sweat equity and treating it like deferred compensation, she says.
“When we have a successor coming in, depending on how long that successor has been working side by side with the senior generation, they’ve earned something,” Dobbs says. “We’re not talking about giving them a handout. If we give them a discounted price, or we give them assets off the top as a part of the succession plan or part of the estate plan, that’s not a handout.”
Deferred compensation says that if a young person had gone to work in a factory right out of school, they would be earning and investing in a 401K or perhaps stock compensation. They probably would have health insurance and HSA accounts that most family farms just don’t have, she explains.
“When the senior generation is putting together their succession and estate plan, consider the benefits the successor gave up by not working off farm,” she says. “Having some sort of benefit, discounts, family-friendly terms in the succession plan and in the estate plan should be considered deferred compensation.”
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