THE BASICS OF ESTATE PLANNING FOR FARMERS Connie S. Haden

10 Reasons to do Estate Planning Now 1.To preserve family relationships 2.To make sure your property goes where you want it to go 3.To make sure your property does NOT go where you don’t want it to go 4.To avoid Missouri’s “default” plan about where your property goes 5.To pay as little tax to the government as possible

10 Reasons to do Estate Planning Now 6.To make provisions for minor children 7.To make provisions for special needs family members 8.To avoid problems caused by second (or third or fourth) marriages 9.To deal with unique assets like a farm or business 10. For peace of mind

What is Probate? Probate is a court proceeding to transfer title to property from someone who has died If the decedent owned property with only his/her name on it, then it will be “stuck” in that name until you change it

Ways to Transfer Property Intestacy Will Trust Joint Ownership Non-Probate Transfer

INTESTACY Die with no Will or Estate Plan State of Missouri provides for the disposition of your property

INTESTACY If survived by spouse and children: spouse gets ½ and children get ½ If survived by children only: children get the entire estate, divided equally

INTESTACY: Other Problems Probate will occur Heirs may be unknown Anyone can step in as Executor Could have a long, drawn out proceeding

INTESTACY: A Bad Idea Dying without any plan in place is a bad idea! The State’s plan for your property is almost certainly not the same as your plan!

EVERYONE SHOULD HAVE: Will, Trust or Non-Probate Transfers Durable Power of Attorney Health Care Directive (Living Will) Directives for the custody and care of minor children

TRUE or FALSE If I have a Will, my property will not go through the probate process.

WILLS

WILLS: Advantages Orderly disposition of property Court Supervision Flexibility in distribution of property Use to name guardian of minor children

WILLS: Disadvantages Not Effective Until Death DOES NOT AVOID PROBATE Cost of Probate Time of Probate Subject to Will Contest (more easily challenged)

TRUSTS

What is a Trust? Creator = Grantor or Settlor Trustee Beneficiary

TRUSTS : Advantages Avoid Probate Flexibility Control Property after your death Estate-tax Planning Privacy Plan for special-needs family members Plan for remarriage of spouse Protection of assets from creditors and ex- spouses

TRUSTS : Disadvantages Can be more expensive Can be more complicated Can be unfunded IMPORTANT STEP: FUND YOUR TRUST

JOINT OWNERSHIP

Joint Ownership: Advantages Avoids Probate Immediate Transfer

Joint Ownership: Disadvantages Creditor of one owner may come after property Cannot sell, borrow against or transfer the property without the signature of the other owners No Stepped-up Basis Possible Gift Tax

NON- PROBATE TRANSFERS

What are Non-Probate Transfers? Transfers that occur outside of probate by designating your heir in official records Beneficiary Deed (for real estate) Pay on Death (POD): checking accounts, savings accounts, CDs, mutual funds Transfer on Death (TOD): titled personal property like cars, trailers, boats, mobile homes Beneficiary Designations: retirement accounts, life insurance policies

Non-Probate Transfers: Advantages Avoid Probate Inexpensive Immediate Transfer Stepped-up Basis No gift tax issues Difficult to Contest

Non-Probate Transfers: Disadvantages Not flexible Doesn’t work well for personal property like furniture or non-titled property like livestock Not good for a family member with special needs Not good for estate in excess of estate tax exemption

The Problem with “Just Divide It Evenly” In many cases, property owners give land away to their children in equal parts as “tenants in common” Under the law, all tenants in common have an undivided and infinite right to possess and use the land

The Problem with “Just Divide It Evenly” This effectively gives all tenants in common a veto right on the use of the property over all other tenants in common – business decisions cannot be made by simple majority rule Gridlock ensues on major financial decisions and on who will do the farming

DURABLE POWER OF ATTORNEY Gives another person (the “Attorney-in- Fact” or “Agent”) the authority to act for you in FINANCIAL MATTERS Useful in case of Disability o “DURABLE” just means it survives incapacity Effective Immediately or Upon Disability ONLY effective during lifetime BE CAREFUL – Very Powerful

HEALTH CARE DIRECTIVE Generally does 2 things: o “Pull the Plug” o Name someone to make health care decisions on your behalf ONLY effective if you aren’t able to express your own wishes Carefully consider your AGENT Discuss your wishes with your Agent Cremation? Organ Donation?

TRUE or FALSE Medicare and my Health Insurance will pay for my long term care.

Paying for Long Term Care Insurance : Long Term Care Insurance Private Pay : use your own funds and assets to pay for long term care State Pay : Medicaid

EACH PLAN IS UNIQUE