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Senior Advisor

Talk Before You Die

Here's an article that gives two examples of why people should talk to the heirs before they die.  The article says if someone is going to be mad, you're better off if they're mad up front and everyone understands your intent.  

 

One example is about the good son who came and took care of the farm when dad had stroke.  Another is about what happens when the kids don't want to do what the parents expect.

 

Nohting like death and money to break up a family, eh?

 

"There are two important points to this article. One is that there must be communication between all of the family members before a succession plan is developed. The second is that there is no single plan that will work for every family."

 

Issued by Gary Hoff
Tax School and Department of Agricultural and Consumer Economics

University of Illinois

 

http://farmdocdaily.illinois.edu/2013/05/keeping-family-informed.html

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13 Replies
Senior Contributor

Re: Talk Before You Die

My children have seen our will, funeral arangements, a copy of an inventory of all assets and how I think what they should do.

Everyone agrees and is happy

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Senior Advisor

Re: Talk Before You Die

I bet most of us could stand to do some more talking before we die, but it's hard.  If you are passing down a business, that is one thing.  If you are getting rid of Aunt Maud's stirling silver, that may be something else.  I'd say the business needs an open enviroinment.  Aunt Maud's silver can go to whomever I like when I write the will and the heck with what anyone thinks.

 

Anyone with special needs family members may have an even harder time deciding how to allocate resources.

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Re: Talk Before You Die

Just thinking.....

 

So if you planned to leave the farm to the good son who farmed and the crumbs to the other kids, but that used to be a when the farm was worth $1 million and the crumbs were $100,000 each, but now the farm is worth $5 million and the crumbs are the same, does that change anything?

 

Don't know that I have an answer but it is a question worth asking.

 

Be careful what you wish for.

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Highlighted
Contributor

Re: Talk Before You Die

Good question..

 

How common is it to favor farming children in that way?

 

I am around 50 now and have just one younger sister.   I worked w my dad, who was a full time farmer,  all the time when not in school from age 14 to 22.      Sister and I left and did other things and a lot of the farm was sold in 90s.

 

If I had decided to stay farming I would have felt TERRIBLE for my sister and her family if she did not get her half of family assets after both parents died.    I would have been expected to, and wanted to, buy my own way into the farm.       The only benefit to me would be a running start at a going concern farm, lots of work experience on the farm,  guidance from parents, and probably a 20 year contract.   Maybe would have gotten a half percentage point off market rates on the contract interest payments.

 

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Senior Contributor

Re: Talk Before You Die

Yes, these articles just state the obvious. I have 3 kids that are still in High School, but I enlisted the help of a Tax Attorney to help me draw up my Estate Plans. The plan even includes gifting my kids a few acres of my farmland every year for the tax issues. This land and the profis it generates goes into there Trust Accounts and at a certain age they will be able to get at the money in there Trust Accounts. I think you need a somewhat flexiable Estate Plan because if you try and rule from the grave, you will probably end up just screwing everything up. And the other very important issue is to keep everything even between the kids. But yes, I have seen times when because of the lack of doing good Estate Planning members of the family end up not even talking to each other. But when I was having the Tax Attorney draw up my Estate Plans and even though my kids were only 15-16 years the last time we updated the Estate Plan, I would sit down with the whole family and explain to them the plan to make it very clear to everyone and if they had questions. And I may have one child that may want to take over the farm operation, or he may not, he is still in High School, so alot can change. When and if things change, you need to adjust your Estate Plan. People should realize that just having an Estate Plan doesn't mean it is written in stone, as things change it can be updated, so it is a very good idea to sit down with the whole family once per year and review it. Just my opinion on this issue.

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Re: Talk Before You Die

I'm perched on the edge of my foxhole ready to dive in before the heavy ordinance starts to land.

 

But, fwiw, one good thig about a tougher inheritance tax was that it created incentives to do things for your kids before you died.

 

The current system gives huge incentives to building up an estate- step up in cost basis and the general discharge of deferred income taxes (a real biggie, actually) and a big exclusion.

 

OK, $5 million used to be a big exclusion, now if you die with 1000 acres in a neighborhood with a bunch of $20,000 recent comparable sales, you got a problem.  Heckuva deal, really, de gummint creates policies that give you vast paper wealth and then they want their cut when you die.

 

Actually it is a stupid way to do taxation but not so much on the basis of being the "hated death tax."

 

What really ought to happen is that gain ought to be dealt with like a capital gain on sale at death (and following the dath of the second spouse, who gets full and complete spousal exclusion) the untaxed income gets taxed at the regular rate.

 

In the above example, I think the estate could be taxed on the order $5 million (don't hold me to that off the top of my head number).  If it was taxed in the way I described, the indexed cost basis per acre on land held a long time  would be substantially

above what was paid and the marginal rate is he 15% cap gain rate it is more like $2 million which is a deal that I would take if anyone wants to include me in their will.

 

Don't see Farm Bureau endorsing that at the next convention though.

 

BTW, I think the infation tax is really is really, truly, the most unfair tax of all. If somebody bought land for $1000 acre 40 years ago those aren't the same dollars, by any means.  On the other hand there is no reason to give a break to people who are doing short term wheeling and dealing- you cut a fat one quick you can pay the ordinary income rate. Also we've seen the deleterious moral haard associated with incentivizing private equity, hedge funds etc.  If they're that brilliant they don't need any additional incentive.

 

PS. This past December I got a big kick out of observing the panic that set in when people started thinking that Obama was going to cut the exclusion.  I said at the time I didn't think it would happen and it didn't and not sure that I'd favor it anyway, given the irrationality of the current system that I described.

 

 

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Senior Advisor

Re: Talk Before You Die

Well done!

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Contributor

Re: Talk Before You Die

Great post.  It is an interesting question.

 

I stated that a lot of the farm was sold in the 90s.  So that put the estate tax question to rest as far as my inheritance.  But if I had inherited a really large amount, I wouldn't be against a modest (inflation adjusted, as you bring up) tax.

 

On the other hand, if you build up a sizeable estate and pass it down, I think that generation (the one that built it up) would be more against the tax.   I think passing to heirs is just another incentive to work and manage well and I don't want that penalized to a large extent.

 

Or if you want to encourage new blood in farming, maybe land sold from large estates to pay tax could get into the hands of new names wanting to get a foothold.  Not a bad thing to encourage either.

 

Whatever the good and bad points of the estate tax, I can also understand wanting to minimize the amount of money federal govt has to spend.    But I probably might agree with 40% of what the federal govt spends money on.   To fund part of that, I'm not against a modest estate tax.

 

 

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Honored Advisor

Re: Talk Before You Die

Redistribution of wealth a family has worked for just seems a fundamental disincentive to be responsible, to me. I can think of way better ways to raise necessary public monies.
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