The next generation may be willing to continue. However, it is important to prepare for the legal issues.
If it turns out that the next generation of a family with a farm want to work it, you have a good start at succession. However, you will also need an estate plan to tackle that job, according to Lancaster Farming in “Estate Planning Important to Succession.”
In order to carry out the succession plan successfully, it is likely you will need all or at least some of the following: guardianship for minor children, beneficiary designations, financial power of attorney for business and power of attorney for health care, an advanced directive for health care, a will and possibly a trust and life insurance.
While this may seem like a lot, an estate planning attorney can guide you through the process. However, you will also need to pass all of the information on to the next generation.
How can you structure the business in order to bring in multiple generations, so the farm can continue to support more than one generation? Without an estate plan in place, the state law generally divides assets, which may require the sale of the family farm. The law does not consider whether members of a family farm are contemplating a divorce or who might have estranged children or parents.
Working with an estate planning attorney who has experience with multi-generational farm families can help bring issues to the forefront and resolve them through a carefully created estate plan. If the will needs to be amended or reviewed in the future, that can be done either by creating a new estate plan or drafting a codicil to amend the will.
Note that one cannot simply make notes in the margins and expect them to be considered valid by the court. Any changes must follow the procedures of the state. That means having the changes made properly, with the help of an attorney.
Assets outside of the will include life insurance policies and payable on death (POD) bank accounts, where a beneficiary has been named. Joint bank accounts and any jointly owned property held with rights of survivorship are also outside of the will.
For some farm families, a trust can be a valuable estate planning tool. With federal estate exemptions now at record highs ($11.4 million for individuals, $22.8 million for couples), trusts are more likely to be used to protect a disabled family member from losing their eligibility for government benefits (A Special Needs Trusts) or for family members who cannot manage their finances on their own.
Wills provide several advantages in succession planning, including control of the property until death, control over who inherits the property, naming a person to be the executor of the estate and naming guardians for minor children.
A living trust eliminates the need for probate and remains private. This makes it more challenging to contest. The trust can also hold assets for minors. However, a living trust has trustee fees and adds a layer of complexity to asset management.
A durable power of attorney appoints a person to act as an agent for all business and financial matters. The authority can have limits; it can be revoked when you want, or it can be written to be active only during a certain time frame, like when you are undergoing surgery.
A health care proxy is the appointment of an agent to make health decisions on your behalf, if you become incapacity and cannot communicate your wishes.
An advance care directive provides specific instructions about what you do and do not wish to happen, when you are facing possible end of life decisions. This may include intubation, artificial respiration, a feeding tube and other means of prolonging life.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.
In a situation in the article, the family home was rented to a daughter and her spouse as a “rent-to-own” property. This is generous, since it gives the daughter an opportunity to build equity in a home. The parent had questions about what kind of a deed would be needed for this transaction, and if any gift taxes need to be paid on the gift of the house and a separate parcel of land.
For starters, there are tax advantages while the person is living, since the home is an investment for the owner, as described above. On the day that the home is deeded over to the daughter, she will own the home at the cost basis of the parent. Here is why. The IRS defines the “cost basis” of a real estate property as the price that the owner paid for it, plus the cost of purchase and any fees associated with the sale plus the cost of any new materials or structural improvements.
When you give someone a home, they receive it at the price that was paid for it plus these costs.
Let’s say this person paid $50,000 for the family home, and it’s now worth $100,000. If you give the home to a family member, it’s as if she paid $50,000 for it, not $100,000. There may be tax consequences when she goes to sell it, but that’s in the distant future.
It’s different if the home is inherited. In that case, if the house was valued at $100,000 on the date that the owner died, the heir’s cost basis would be $100,000. However, if the heir sold the property on the exact same day (this is an unlikely scenario), there would be no tax owed on the sale for the heir.
This is a very simplified explanation of how a home can be passed from one generation to the next. It would be best to speak with a good estate attorney, who can evaluate all the factors, since every situation is different. One suggestion might be to put the property into a living trust, in which case the daughter will still pay rent to the parent, but then would inherit the property when the parent died.
The estate planning attorney could use the same living trust for the separate parcel of land. Once the home and the land are deeded into the living trust, the owner can state her wishes for how the properties are to be used.
As for the question of gift taxes, anyone can give anyone else $15,000 per year, with no need to file any forms with the IRS or pay any taxes. If you give someone more than $15,000 in one year, the IRS requires a gift tax form with the federal income tax return.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, including the best way to transfer a family home under the laws of your state of residence.
Start by looking at the higher and lower earners levels. As the Social Security rules stand now, it makes sense for the higher earner to defer filing for Social Security so that her benefit can be maximized. It also ensures that the spouse who lives longest, will have the largest household benefit when one dies. This is the side of Social Security that is often overlooked, because who wants to think about what will happen when a spouse dies? However, in most cases, one survives the other, usually by as many as 10 years.
In a case where the lower earning spouse is also the younger spouse, one strategy is to have that spouse file first for his own retirement benefit, while the older and higher earning spouse files as late as possible.
The key variable: How old are the spouses when they file for benefits? One common misunderstanding is how Social Security benefits are determined. To claim a maximum spousal benefit, the filing spouse must not file for this benefit before his full retirement age (FRA). If either spouse files earlier, the potential for large reductions in the percentage of the benefit the spouse would otherwise receive will be significant.
If the lower earning spouse files early for his own retirement, it not only reduces his own retirement benefit, but also the potential for the spousal benefit in the future.
That additional benefit would equal the amount by which the lower-earners spousal benefit exceeded his own retirement benefit. There’s no double dipping here. You can’t get the full amount of both benefits, but you can get the amount equal to the higher of the two benefits.
Because the lower earner in this case would already be receiving benefits, the additional benefit would be termed “an excess spousal benefit” by Social Security.
As you begin to consider Social Security benefits, it would be a good time to contact your estate planning attorney and revisit your estate plan.
Your estate planning attorney will know what you need and when.
When you meet with an estate planning attorney, the circumstances vary because you may meet when you are bringing up children or you may meet when you are living in an empty nest, according to the Houston Chronicle in “Learn about legal documents and Medicaid.”
It should be noted that everyone needs an estate plan at any time of life, so they may state their wishes for how assets are distributed and name a person who will speak in their behalf, in the event of incapacity because of an illness or injury.
An estate plan also includes a power of attorney, so someone you chose can serve as your agent to transact business and handle your financial matters. There should also be a declaration of guardian, in the event of later incapacity and a HIPAA medical authorization document. In some instances, a designation of remains is prepared in order to name an individual who will be the appointed agent to care for the body at the time of death.
However, there’s another reason why you’ll need to meet with an attorney at this time. As we get older, the need to address long term care becomes more important. Making the right decisions now, could have a big impact on the quality of your retirement and your later in life medical care.
If you have not updated your will or your powers of attorney, specifically a durable power of attorney for property, it would be wise to do so now. You will need a document to clearly authorize your agent to deal with assets. Any documents that are out of date, or in which named agents have predeceased you, won’t be effective, leading to problems for you and your heirs.
The document may also need to include a broad gifting power for your named agent, so assets can be transferred out of the estate. If this detail is overlooked, the agent may not be able to protect your assets.
This is the time when you may want to take steps to protect your children upon your death or upon the death of the second parent. If your goal is to eliminate assets to be eligible for Medicaid coverage, this planning needs to be done well in advance. In numerous states, there are state administered programs that pursue recovery of assets when a person has received Medicaid benefits.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.
With record numbers of retirees declaring personal bankruptcy, little or no pensions and out-of-pocket medical expenses that have become unmanageable, retirement has lost much of its golden glow.
For the 75 million boomers and the Generation Xers who follow, the retirement income crisis has gotten Congress to act together, an unusual occurrence in these divisive times. Both the House and Senate have introduced bills that would provide American workers with expanded opportunities to participate in employer-sponsored plans.
The House Ways and Means Committee has unanimously passed a bipartisan bill, The SECURE Act: “Setting Every Community Up for Retirement Enhancement.” This bill incorporates provisions from the Senate bill RESA (Retirement Enhancement and Savings Act of 2019). Together, RESA and SECURE are the most sweeping retirement legislation, since the Pension Protection Act was passed in 2006.
The SECURE act is a complex bill. Among the components are:
Under SECURE, retirees would be permitted to take required minimum distributions from traditional IRAs and 401(k)s at age 72, instead of 70½. In addition, workers would be permitted to continue to contribute to these savings accounts past age 70. Americans are working and living longer and should not be forced into taking retirement money from accounts before they need it.
The top limit for automatic escalations of 401(k) contributions would be 14% of pay, up from 10%, so more can be set aside.
Small businesses would be given the ability to band together to create multi-employer 401(k) plans and receive tax credits, if they set up automatic enrollment plans.
Part time workers would be eligible for retirement benefits, provided they have worked at least 1,000 hours in one year or at least 500 hours for three consecutive years.
How much financial security will SECURE actually provide? It depends on who you are. If you are in good health, with a stable work and a financial cushion, it may help you. However, if you are living paycheck to paycheck, there’s not much here to crow about.
Lower income Americans, especially those with physically taxing jobs, tend to have shorter work lives, exiting the labor market in their 60s or younger, because of health problems. Giving them more time to invest and draw benefits may not have much of an impact on their retirement finances.
The ability to contribute 5% more to a 401(k) or participate in a plan set up by a small business may be appealing, but it only works for those who have the money to participate in the first place.
The most promising aspect of the SECURE act is the opportunity to be enrolled in a plan for part-time and temporary workers, because more Americans work part time.
When you are not able to speak, you can’t tell loved ones that you’ve had a good life and you are okay with letting go, or if you want to fight to stay alive, no matter how invasive the process may be.
That’s why you need an advance care directive. Anyone over age 18 needs to give this some thought and then take the next step and have the necessary document prepared. It’s a good idea for anyone over age 18 to have a will prepared as well, especially if they own a home, car, or have personal property they would like to pass along to any specific people.
The second part of advance care is to name a person as your health care power of attorney. That person will be in charge of making medical decisions when you cannot. People typically name their spouse, but that’s not always the best option.
Here are the steps to follow for Advance Care Planning:
Identify someone who will take on the role of health care power of attorney.
Reflect on your values and beliefs and what living well means to you personally.
Consider religious, spiritual, or personal beliefs and how they align with your end of life wishes.
Share your decisions with the person you wish to take on the role of health care power of attorney.
Make sure that person is able and willing to carry out the duties, even if the family or other people feel opposite of your wishes.
Meet with an estate planning attorney to document your health care power of attorney.
While you are attending to this task, speak with the estate planning attorney about having a will and a power of attorney created. Once these documents are taken care of, you and your family will be better protected, in the event of an unexpected tragedy.
As time goes by, the people you have chosen for these roles may age or your relationship with them may change. Every now and then, check in with them to ensure that they are still willing and able to handle the responsibility of a health care power of attorney and power of attorney.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.
The typical scam starts with a robocall that says that an enforcement action has been executed by the U.S. Treasury against your Social Security number, and that ignoring this would be an intentional attempt to avoid appearances before a judge for a federal criminal offense. The tone is very serious, and it’s a convincing script. A phone number is provided, so that people can call someone to help avoid being arrested.
One security expert put the scammers through their paces, calling the number and going through the process, with false names and account information, to learn first-hand how the scam operates.
The sophistication and calm demeanor of the scammer works well. The security pro gave a fake name, and his “file” was found immediately on the scammer’s system. He also provided a fake address and a fake Society Security number. Somehow the scammer confirmed all this information.
The scammer told the security expert that law enforcement agencies had found fraudulent bank accounts and crimes including money laundering, drug trafficking, and IRS scams linked to them. The expert was asked to confirm ownership of the 25 bank accounts, with a stern question: “Do you own these accounts, yes or no?”
The question is meant to cause fear and confusion. It works. When the security expert pretended to be flustered by the question, the scammer’s tone became helpful and kindly. He just needed to know exactly how much money his victim had and the numbers for the bank accounts. In that way, he would be able to help identify which of the accounts were real, and which were fake.
Once the supposed victim gave phony account numbers and told the scammer he had more than $85,000 in one of his bank accounts, the tone changed to attack mode. They told the security expert how many crimes there had been and how many federal counts there were against him. The possibility of 30 years of prison time was emphasized. There was another stern question, asking “Do you accept all of these allegations under your name?” The tactic makes an unsophisticated or frightened person feel, as if they are being scolded by an authority figure. It works many times
The scammer’s tone then shifts to that of a kindly friend, offering an opportunity to make things right. Part of that is the request for the caller to give the scammer the phone number for Social Security and the authority for the scammer to “clear his name.” The scammer even told his alleged victim that there are a lot of scams out there, and he didn’t want him to be a victim!
The alleged victim was told to go to the bank, withdraw all his money and convert it to “government-certified bonds.” This was followed by a discussion of “government-certified stores” like Apple, Walmart, Target, CVS, as the source for gift cards. The “bonds” would never leave the victims hands. He just had to give the scammer the serial numbers on the cards, so they could “update your file.”
That’s where the money goes. The balances on the cards are transferred by number to the scammer’s accounts. The victim goes to the bank to “deposit” the cards, as they have been directed to do by the scammer, only to learn that they are worthless.
At this point, the security expert hung up, only to be called back more than a dozen times. He had learned what he needed to know, and now you do too.
When a robocall comes in, hang up. The government never demands payment in gift cards. If there was a warrant out for your arrest, there would be a police officer or federal marshal at your door, not on the phone.
You will need an executor. The position needs considerable thought before making that decision.
There are many questions asked of potential executors, including are you willing to take on such a role and are you comfortable with accepting the role, according to The Huntsville Item in “Role of an executor.”
Sometimes a person is confused by the will and the executor’s responsibility. A person having a will prepared is called the “Testator” if male and a “Testatrix” if female. The person they appoint to take care of distributing their assets and carrying out the instructions in their will is called the “Executor” if male and the “Executrix” if female. That person also pays the estate’s debts and taxes. Note that the debts and taxes are not paid from the Executor’s personal accounts, but from the proceeds of the estate.
The Executor has several responsibilities and power. Therefore, it’s important to choose an individual who is organized, good with finances and knows how to get things done. An Executor could be a person or an institution, like a bank. Here are some things to consider, when selecting an Executor:
Are they good with handling their own personal business?
Do they have some familiarity with your business, finances and property?
Are they willing and able to act as your Executor?
Do they have the time to devote to serving as Executor?
Can they work with your estate planning attorney and your accountant?
If you own a business, will they be able to keep it going during a transition period?
There should always be a Plan “B” and perhaps even a Plan “C,” if the first person you wish either cannot or will not serve as Executor. If you do not have a Plan “B” or “C,” the court may name an Executor. That may be a person you don’t know, who does not know you, your family or your business.
The Executor’s tasks vary depending upon the laws of the state. However, in general, these are the Executor’s tasks. Note that an estate planning attorney usually assists with this process.
The will is probated, which requires filing an application with the probate court in the decedent’s jurisdiction.
The court issues Letters Testamentary to the individual designated in the will as the Executor.
A general notice is given to unsecured creditors within 30 days of being appointed Executor.
Notice is given to each secured creditor, by certified or registered mail.
Documents need to be gathered, including insurance policies, bank statements, income tax returns, car titles, leases, home deeds, home titles, mortgage paperwork, property tax bills, birth, death and marriage certificates and unpaid bills.
The post office, relatives, friends, employers, insurance agents, religious, fraternal, veterans’ organizations, unions, etc., all need to be notified.
The personal property of the estate needs to be collected, preserved and appraised.
The residence needs to be secured and maintained, including a review of insurance coverage.
An inventory of the estate’s assets needs to be prepared.
The Executor needs to apply for Social Security benefits and an employee identification number (EIN) for the estate’s bank account.
Once the EIN number has been created, open a bank account on behalf of the estate and pay all valid debts from the estate account.
Determine any tax liability and prepare for a final tax return to be filed.
Distribute the assets and property of the estate, according to the directions in the will.
Usually the estate planning attorney handles many of these tasks and works closely with the Executor. Some Executors are compensated by the estate for their time and effort, but that is not always the case.
A survey was conducted recently by the moving company United Van Lines. The company asked 26,998 of its customers who moved from Jan. 1, 2018 to Nov. 30, 2018, why they were moving and where.
New Mexico seems to be taking over the lead from Florida, when it comes to retirement. Florida was second, followed by Arizona, and the cost of living is a key factor. After examining the cost of housing, medical expenses and income taxes, retirees or soon-to-be retirees are making their plans.
Another important factor is how states treat Social Security income. There are still states that tax Social Security, which is a big turn off for retirees. Those states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, and Vermont.
New Jersey is experiencing a big outflow of residents. It has the highest effective property tax in the country: 2.13%, according to the Tax Foundation. It also has a top individual income tax rate of 10.75%, applicable to income exceeding $5 million.
Affordability is a significant factor in retirement relocation, but there are other factors to consider, including:
Family and friends. If you can afford to stay where all your family and friends are, isn’t that worth a “friends and family” tax? Who will be on your emergency contact list in a new home town? Will you make a new network of friends to serve as your retirement family?
Know before you go. Get to know the area before buying anything. If you can, rent for a six-month or one-year period. You should also go off-season, if retirement has you considering an area with a high number of tourists. A busy beach community that becomes a deserted island may not be as much fun as when the crowds all leave — or it may be better. Live there before committing permanently.
Call your financial advisor. Don’t go anywhere, until doing a comprehensive analysis of the costs of the move and the new location’s cost of living. What does an active lifestyle cost in a new town? Just as important, what would it cost if you or a spouse become seriously ill in the new home? Is there quality health care nearby, or would you have to return home for any kind of serious medical care?
Meet with an estate planning attorney. If your plans include moving to a state far from family and friends, you’ll need to be sure that all estate planning documents are up to date. You’ll also need to have your current estate plan reviewed to make sure it will be valid in your new home state.
So, you’ve reached your FRA. However, is this the right time to file or should you delay benefits?
Social Security has more than 62 million people receiving benefits, making it one of the most popular social benefit programs in the country, according to The Crozet Gazette in “When Should I Start Taking My Social Security Checks?” However, while the programs are used by millions of Americans, the key for each recipient is to know the best time to file.
Over the years of working and paying taxes into the system, a working person receives a monthly benefit for life, with a COLA (Cost of Living Adjustment) being the only adjustment. Forty “work credits” are needed to be eligible for the program, which is about 10 years of work for most people. Benefits vary, depending upon the earnings of the individual and the number of years they paid into the system. The maximum benefit in 2019 would be $3,770 per month, although most payments range from $800 to $2,400, according to the Social Security Administration.
To receive the full amount, the worker must wait until FRA (Full Retirement Age) to collect benefits. FRA depends upon your year of birth. However, workers can take benefits as early as age 62 or as late as age 70. If benefits are taken early, the monthly amount is lower, and that can not change. The later benefits are claimed, the higher the monthly benefit will be.
The question to which there is no single answer, is when to start collecting benefits.
The first issue is if the person needs income and there are no other sources. Many people begin collecting Social Security early, because of unwanted early retirement. They are let go from their jobs and have a hard time finding another position. Another consideration is health. If someone has a chronic illness or a serious illness and they don’t expect to live a long time, it makes sense to take the money earlier.
What most people are looking for when they ask about the timing of benefits is a “break even” age. However, that is an inexact science. Unexpected events happen, so while the numbers may work at one point in time, life circumstances may happen, which makes those numbers useless.
Keep in mind that Social Security benefits may be taxable. Therefore, if you are still working, it makes sense to delay taking benefits
There are varying opinions on what the future of Social Security will look like. In fact, 2018 was the first year since the 1980s, when the program paid out more in benefits than it received in tax revenue. Congress can authorize funding to address demographic shifts that will impact the trust assets. Social Security was designed as a supplement for worker pensions and not to be the sole income source, so retirement planning should include, but not depend upon Social Security.