DTN Special Correspondent Elizabeth Williams reported on Friday that, “Even the rich and famous make mistakes when it comes to estate planning. Consider the iconic musician Prince, 57, who died without a will in April. The main beneficiaries of his estate will likely be the IRS (which could wind up with $118 million, assuming the value of Prince’s estate at $300 million), the state of Minnesota ($48 million in state death taxes on a $300 million estate) and the attorneys hired to sort things out. Most likely, this is not what Prince would have preferred.
“In fact, the main problem with dying without a will is the state where you live decides where your assets end up. It’s a mistake that could easily be avoided.”
Ms. Williams added that, “DTN asked agricultural tax experts what common estate planning problems in farm and ranch country could be avoided with proper planning. Here are the top 10 ‘blunders’ they wish farm owners would avoid:
“1. Expect the will to cover everything.
“People have the mistaken notion that their will overrides other financial documents, said Johnne Syverson, certified financial planner and accredited estate planner with Syverson, Strege and Co. in West Des Moines, Iowa.
“‘In fact, your will does not have power over the beneficiaries listed on your life insurance or annuities or IRAs. It also does not have anything to do with certain financial accounts such as your bank account or brokerage account where you have a ‘payable on death’ agreement,’ Syverson explained. ‘We had a client who had been divorced for 15 years and had remarried, but he still had his first wife listed as the beneficiary on his life insurance. Other clients have had beneficiaries or had named executors or trustees who were now deceased. Or, they still had their parents listed as beneficiaries and not their wife and children because they hadn’t updated their policy in years.’
“The will is only one component of an estate plan, added Nick Houle, CPA and principal with CliftonAllenLarson in Minneapolis. ‘Joint tenancy ownership and beneficiaries listed on life insurance policies and ‘payable on death’ or ‘transfer on death’ documents all override a will,’ Houle said. ‘These need to be updated when your beneficiaries change.’
“2. Set up a Revocable Living Trust but don’t transfer ownership titles to it.
“‘Some people set these up 20 years ago. These trusts are a great tool to avoid probate and as the trustee, you still retain control over your assets,’ explained Kevin Bearley, tax attorney with KCoe Isom in Loveland, Colorado. ‘They may have funded them then, but now some of those trusts no longer have assets in them. Your revocable trust, not you personally, should be the owner of your farm corporation or partnership interests, your personal residence and your checking account,’ advised Bearley.
“Also, real estate you own in another state, such as lake houses, vacation properties or timeshare interests (which are deeded property) should be in your revocable trust, noted Syverson. ‘Otherwise, that property will have to go through probate in the state where it is located and that can be expensive.’
“3. Putting everything in one pot.
“‘We see way too many problems when all the farmland is owned with undivided interest and often the family has to go to court to get something sold,’ noted Kevin Mills, CPA with KCoe Isom in Lenexa, Kansas.
“‘It simplifies things if the land is in an entity with a good buy-sell agreement when someone wants out,’ Mills said.
“You may also want to separate assets so the on-farm heir gets the operating assets and the land is split between all the children, added Syverson.”
The DTN article went on to include seven other “blunders” including: Unequal treatment of offspring; Impractical buy-sell agreement; Too much gifted away; Child gets too much, too soon; Life insurance policy expires; Procrastination; and, Lack of communication.