If you grew up in rural America, it’s a pretty safe bet to say you know a farm or ranch family who experienced a bitter argument after the parents passed away while the farm/ranch assets were being divided. Perhaps you were even one of the unfortunate family members caught up in the turmoil because Mom and Dad never found time to do estate planning, or just couldn’t decide on a method to transition the farm/ranch operation to the next generation.
If you own a farm or ranch, would like to keep the operation in your family for future generations, AND desire to preserve family relationships, now is the time to form a solid succession plan. A good succession plan takes time and isn’t without emotion and compromise, but the result can provide a future for your family and ensure your operation transfers to the next generation with as few problems as possible. Succession planning is a complex matter but here is a brief synopsis of three common succession options we see:
1. Farming heir purchases farm assets from parents as they reach retirement age. The proceeds are incorporated into the parents’ estate, with the intent to share those proceeds with the children upon their death. Drawbacks to this approach may include the requirement that the farming heir have access to large amounts of money or credit to complete the purchase. (Too much debt may financially cripple the farming heir if he/she does not have adequate collateral prior to the sale.) Also, the parents’ will have capital gains tax on the proceeds from the sale. Both of these could be lessened by the parents financing the sale. Keep in mind that should one or both of the parents require multiple years of nursing home care, some or all of this income could be required for their care, leaving little to nothing for their heirs after death.
2. Farming heir purchases farm assets from estate after both parents pass. The drawbacks to this option are very similar to the first option. The farming heir must have access to large sums of money or credit and if the parents required extended nursing home care and received Medicaid, the heirs may be required to sell farm property at public auction to pay Medicaid debt. The upside here is that since the assets would have received a step-up in basis at the parents’ death, the selling heirs will not have to pay capital gains tax.
If the task of helping your parents coordinate medical services, home repairs, caregivers, and legal and financial consultants has fallen to you, below is some important information you might need.
As your parents’ physical and/or mental health declines, they may require skilled nursing home care. If this is necessary, you will need to be aware of your parents’ financial information to determine if they will have enough to pay for their care versus if you will need State assistance. Similarly, you should have a comprehensive knowledge of their medical needs and treatments to ensure adequate health services will be provided to your parents. If your parents are agreeable, begin to accumulate this information now before you are faced with an emergency nursing home admission or a death. Gathering this information while your parents are alive and able to advise you on the location of assets, names of advisers, etc. will save you countless headaches - trust us!
What’s the easiest way to gather this information? Your parents can most easily assemble the necessary documents and contact information, if they are in good health and willing. If they struggle with their health or organizational skills, they could legally appoint you to serve as an immediate Power of Attorney for their financial and health care matters, to help them with this process. These Powers of Attorney would allow you to communicate with any business or health care agent working with your parents even if your parents still have capacity. You could also make decisions on their behalf, should that become necessary. As a legally appointed Power of Attorney, you can pay their bills, sign contracts, make investments, etc… Be aware, however, with this power comes greater legal responsibility. Your decisions must be beneficial to your parents and be in keeping with their standard practices. You will be held to a higher standard by the Court if it is determined that you acted against your parents’ best interests.
So, you and your significant other want to get married? Congratulations! Because a marriage is a legally binding contract, you need to be aware of your legal rights and obligations before saying “I do”. Most couples, in addition to the actual marriage contract, will enter into multiple other contracts while planning the wedding event of their dreams. To help your wedding day and marriage run more smoothly, we’ve assembled a few ideas for you to consider:
• Get written contracts with vendors. Early in the planning process, you will likely arrange for vendors to supply your venue and reception needs. Vendors can include bridal or tuxedo stores, photographers, bakers, reception halls, musicians, caterers, florists, security, clergy, wedding coordinators, printers, travel agencies, etc. Make sure you obtain written contracts from each vendor specifically stating what they will supply for you and the price, including details of when and where everything will transpire. The written contract should be obtained at the time you make a payment. Failure to have a written contract can lead to unimaginable stress and disappointment at your wedding.
• You will need a marriage license. Contact the Clerk of the District Court at your county courthouse to fill out the required paperwork at least a week prior to your wedding date to ensure all the proper documents are completed in time for your ceremony. In Kansas, once you make an application for the marriage license, there is a 3-day waiting period before you can pick up the actual license required for your marriage ceremony. You also will need to provide identification and pay a fee. After the ceremony, both spouses, the officiant and two witnesses must sign the marriage certificate. Either you or your officiant must record the signed marriage certificate with the state to make the marriage legally official. If you plan to change your name, you should inquire about this procedure at this time.
We get it; starting a new business is exciting and most entrepreneurs can’t wait to dive into the process. The emotions of starting something new can be intoxicating. However, there are also many challenges associated with being a new, small business owner! Using a recent article by Attorney Lee Rosen as inspiration, we hope this list of often-seen business challenges helps you better prepare for your new venture:
1. Loss of freedom. Unless you hire a staff, you are solely responsible for all sales, marketing, clerical duties, accounting work, etc. Even if you do have a staff, you are ultimately accountable when it comes to making sure all tasks are accomplished correctly and on time. Say good-bye to someone else paying for your vacation time, 401K contributions, health insurance and sick leave. These benefits must now be provided by YOU, from profits you generate in your new business.
2. You’ll need help. Very few individuals have the skill or knowledge to start a business without assistance from accountants, attorneys, bankers, etc. Those who do forge ahead without professional advice often end up backtracking and hiring someone at a later date to fix problems that could have been avoided if guidance had been sought at the outset. Fixing problems after they exist almost ALWAYS costs more than doing things correctly in the first place.
3. It’s go time. An idea that sounds good on paper or over a drink with your buddies often is not practical in the real world. Be prepared to skin your knees and stub your toes, a lot, in the early years of your new business. Do your due diligence; research your prospective market and industry to determine whether your business idea has a fighting chance to be successful. Failure to do your homework in this context can cost you thousands of dollars and perhaps your professional reputation. When you open your doors for business, there are no “trial runs”. Customers expect professionalism from day one.
Q: My husband and I are in reasonably good health and although we are in our 60s, we have had conversations about the day when we may need to move to a nursing home facility. How can we preserve most of our assets for our children?
A: There are several things you can do before one or both of you need nursing home care. Before we begin, make a comprehensive list of all your assets, including their current value, the name of the company and/or adviser, location of the asset, legal description of any real estate, minerals, wind or water rights, how ownership is titled, and current beneficiary information. This list should include any assets that are non-income producing such as inherited mineral interests, business interests, insurance policies, etc. You will need to share this information with an experienced long-term care planning attorney for their recommendations.
Below is a list of options you may want to consider:
1. Meet with your long-term care planning attorney and accountant to discuss if your financial situation will allow you to begin transferring assets to your children now, either in part or in whole. Ideally, you would transfer as many assets to your children as possible at least five years before your admission to a full time nursing facility, as you will be penalized for any gifting done in the five years preceding an admission, which increases your overall out-of-pocket expense. Be aware that just because you gifted assets to your children with the expectation that they help with any financial problems you may encounter in your later years, they are under no legal obligation to comply. Gifting can be done to your children outright or in a trust. A trust is more costly, but gifting outright to your children means your newly-gifted assets are subject to your children’s possible divorce settlement, lawsuit or bankruptcy.
2. Continue to age at home and attempt to avoid nursing home care altogether. If you have not already developed a healthy routine of diet and exercise, begin immediately. Consult with your physician to see what suggestions they have to improve your odds of remaining independent at home.
3. When you need assistance, move in with one of your children. This may not be a popular option for either you or your child, but if you wish to preserve as many assets as possible from nursing home expenses, this strategy can be an answer. You may need to provide some fair compensation to your care-giving child, as they are taking on the additional responsibility of caring for you and will incur additional expenses and loss of personal freedom as a result. Consult with your long-term care planning attorney to structure compensation to the care-giving child so that it won’t be considered a gift and factored against you when computing your nursing home costs if that becomes necessary at a later date.
4. Depending on your age and your ability to pay, you may be able to purchase long-term care insurance. Long-term care insurance is expensive and may not pay the full amount of your nursing home care, but it can cover a large portion of the expense. Be sure to thoroughly research the insurance agent and company before purchasing any policy. Additionally, be sure to inquire about the policy’s inflation protection and waiting period you must incur prior to payment being issued to the nursing home. We advise getting 2-3 quotes for long-term care insurance to avoid an inferior product.
5. If you have a disabled child, you may want to consider making donations to fund a special needs trust on their behalf. These donations are not considered a gift when the nursing home calculates your expected expense. Donations to a special needs trust are irrevocable and cannot be used for the benefit of anyone other than the disabled individual for whom the trust was established until such time as the disabled individual is deceased.
If you and your family have questions about long-term care planning and asset protection, please contact Davis & McCann, P. A., Dodge City, KS. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on estate planning, Medicaid and Long-term Care Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate Transactions, 1031 Exchanges, and related matters.
You may have heard of a Special Needs Trust, but do you fully understand what it is or how it can be beneficial? Over the years, we’ve had the privilege of working with multiple families of special needs individuals to establish this type of trust. Let’s cover a few of the most common questions we are asked:
1. What is a Special Needs Trust? A Special Needs Trust is a legal tool established specifically to benefit someone with physical and/or mental disabilities. These trusts are used to provide financial support for the individual with the disability.
2. What are the benefits of a Special Needs Trust? By using a Special Needs Trust for a disabled individual, a family member or friend can establish a fund that will be used to provide comfort care items to a disabled person, without jeopardizing that individual’s eligibility for government assistance. Without a Special Needs Trust, substantial financial gifts made to a disabled person, even those provided for in a trust established for their benefit, could disqualify them from receiving government benefits for which they would otherwise be eligible.
3. Can the beneficiary (the disabled individual) access the funds in the Special Needs Trust? No, a Trustee is appointed when the trust is established who is solely responsible for buying services and products for the individual, like vacations, home furniture and supplies, medical and dental expenses, educational expenses, vehicles, personal care attendants, etc. If the disabled individual were to have direct access to the funds in the Special Needs Trust, he/she could be disqualified from government benefits.
4. Who can set up a Special Needs Trust? Anyone may establish a “third party” Special Needs Trust for the benefit of a physically and/or mentally disabled person. You need not be a relative of the individual. A “first party” Special Needs Trust or a “payback trust” is established by a disabled individual or a conservator on their behalf and holds assets that belong to the disabled person, who must have special needs and be
Q: My wife and I have farmed our entire married lives and we are nearing retirement. Several years ago, we formed a Kansas Limited Liability Company (LLC) for our farming operation and now we would like to begin to gift LLC membership units to our three adult children. One of our sons is the LLC manager but the other two children are not involved in the farming operation. I’d like the children to receive only distributions of income from the LLC at this point, not voting rights. What is the best way to make this happen?
A: You and your wife can each gift up to $15,000 per child, per year, without federal or state gift tax consequences. Therefore, you can gift each child a combined total gift of up to $30,000 worth of LLC units each year. Unless your existing Operating Agreement established a value for each LLC unit or a method of valuation, we would recommend that you contact a certified appraiser to establish the current value of your LLC. Based on information from your appraisal, you will be able to determine how many units you can gift to each child and still avoid federal and state gift tax consequences.
Before you proceed to gift any LLC units, you should have your Operating Agreement thoroughly reviewed by an attorney experienced in corporate law to determine whether your existing Operating Agreement
If you have been fortunate enough to acquire a substantial amount of wealth during your lifetime, you might be inclined to look for ways to share that wealth with those individuals you love, as well as reduce your potential estate tax.
Only you can decide whether your loved ones are responsible enough to manage a monetary gift at this time, but if you would like to see them enjoy some of the fruits of your labor while you are alive, here are a few things you should consider before making a financial gift:
1. Under current law, you may gift up to $15,000 (the annual exclusion amount) to any person in a year without having to file a gift tax return or pay gift taxes to the IRS. If you gift over this amount to any one person during the year, then something called your lifetime exemption comes into play. The current lifetime exemption amount is $11.4 million, but will increase to $11.58 million in 2020. Therefore, if a person makes a gift over $15,000 to an individual in a year, they use up a portion of their lifetime exemption, which they document with the IRS by filing a gift tax return, even if there is no gift tax due. If an individual gifts more than $15,000 to an individual in a year and has used up their lifetime exclusion amount then, that person will face a hefty 40% tax on the amount of the gift valued over $15,000.
2. If you are married, you and your spouse may each gift up to $15,000 to the same person in the same year, without gift tax consequences. The gift recipient does not need to be related to you.
3. What if you want to make a financial gift to your spouse? You are in luck! Gifts to spouses are generally unlimited and require no gift or estate tax payment. An exception to this rule: If your spouse is not a U.S. citizen, you are limited on the amount that you can gift tax free.
Family gatherings, holidays and special events are perfect opportunities to check in on your aging loved one’s health and well-being. If you suspect your loved one may be struggling with their mental health, here are a few signs you can watch for at your next visit:
1. Confusion, or increased problems with decision-making.
2. Loss of weight and decrease (or abnormal increase) in appetite.
3. New complaints of fatigue or insomnia.
4. Difficulty managing finances or calculating numbers.
5. A noticeable change in personal hygiene, appearance, or home maintenance.
6. Memory loss, especially short-term memory issues.
7. Depression symptoms lasting more than a few weeks.
8. A change in social habits; withdrawal from events and people they normally enjoy.
The last of the children have moved away from home. You’re officially an empty nester! If you’re like many parents, adjusting to this new found freedom and income will take some time. Here are some great tips to keep in mind as you plan for your future:
1. Schedule an appointment with a reputable financial planner or accountant to review your retirement plan and make any necessary adjustments to your savings and investment plan to accommodate the lifestyle you want to have in your post-retirement age. For example, you may want to lower your household budget because you no longer have expenses related to raising children, but possibly increase your personal spending because you would like to travel.
2. Examine your estate planning documents, old will and powers of attorney and make sure they still reflect what you want to happen if you can’t act on your own behalf. A few things you should consider: (a) Do any of your children have legal or marital concerns that might put their inheritance at risk? (b) Are any of your beneficiaries receiving government benefits, whose eligibility might be jeopardized by an inheritance from you? (c) Do you still want the same people acting as your health care or business powers of attorney? (d) If you plan to become a “snowbird” and travel out of state for extended stays, do you know if your current estate planning documents will be honored in your secondary state of residence? (e) Has your net worth increased significantly since you signed your will or trust? (f) Do you still want the same people named in your original will or trust as beneficiaries? (g) Have any deaths or births occurred within the family that would require an amendment to your will or trust? (h) Have you acquired any titled assets since you did your original estate plan (real estate, minerals, investments, vehicles, business interests, etc.)?
NEWS YOU CAN USE
Davis & McCann, P. A.,