Down on the farm: Navigating estate planning

January 23, 2014 Categories: The Art of Advising
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Simplifying estate planning

I recently sat in on a discussion with my mother-in-law, her financial advisor, and my wife while on a family vacation in Wisconsin. My mother-in-law wanted to have this meeting while her children were in town so they would be aware of her financial holdings and general situation: there are four kids and, per the Trust, the assets would be split equally. A pretty straight-forward estate plan, right?

Maybe not, as an issue has been brewing over the last few years around what would happen to the property part of the assets. Did I mention that the property is a 127 year-old farm that has been in the family for generations? Part of the family would like to keep the farm because they don’t want to see their heritage sold off. The other part would rather just rid themselves of the headache of maintenance and upkeep.

This issue isn’t limited to farms. Many of your clients likely have complex estate planning needs that require high-quality conversations with you and their families. As you think about these conversations, bear in mind:

  • Whether there are differences in opinion on what to do with assets, be it land, buildings or some other heirloom. These disagreements need to be resolved before they can potentially lead to bad blood among family and expensive legal costs.

The first step may be to determine the wishes of each of the beneficiaries, and then try to create an equitable solution, making sure all stakeholders are aware of the risks involved. The final decision should be recorded and filed, leaving nothing open to chance.

  • Which potential risks should be considered. One risk could involve a difference in the fair market value of the property and/or the financial holdings at the time of inheritance. Another risk could be losing the property or portion of investment due to some extraordinary circumstances. Yet another might be that a solution to make an equitable divide today may not result in an equitable divide later.

A potential solution may be to divide the assets into monetary assets and real assets and specify the beneficiary of each. If the property is the only asset, then a buy-out amount for the family member(s) could be predetermined, whether it be a fixed amount, the current value or the future value. Perhaps the property is generating a cash flow which could help fulfill the needs of a family member who needs the cash, or that cash flow could be invested for some future need.

The bottom line

Of course, the more beneficiaries and assets you deal with, the more complex estate planning decisions can be. There is no easy answer, but by engaging your clients in conversations now, you can potentially help them avoid headaches down the road.

Jon Schuette is a Senior Portfolio Strategy Analyst for US Private Client Services – PCS Consulting Services Group.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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