A PLAN OF ACTION

Plan Your Work, Work Your Plan

By E.C. Carson

Editor's Note: This is the final installment in The Cattleman's special, 3-part series on estate planning. Part 1 of the series provided an overview of estate planning and discussed why many ranchers avoid this vital aspect of business. The second story covered the key areas important to assembling an effective estate plan. (Both of these stories are now available online at thecattlemanmagazine.com.) This story, the series finale, will provide pointers on properly implementing an estate tax plan.

At its core, an estate plan is a living document. Business owners, such as ranchers, develop an estate plan to provide a step-by-step outline of ongoing actions that secure and transition assets to the next generation. Unfortunately, estate plans are sometimes treated as "break-in-case-of-emergency" documents — developed with the best of intentions and then left unattended. Ultimately, the plan loses effectiveness. Implementation of a completed estate plan seems inevitable. After all, the individual who initiated the plan recognized the need for such a document, and spent time and financial resources on its development. However, C. Beth Roberts has seen well-constructed estate plans slip into obscurity from inaction.

"A plan sitting on the corner of a desk or locked away in a safe is a lot of wasted time and money," says Roberts, who has been a Registered Financial Consultant for 25 years, and is a registered representative with Lincoln Financial Advisors and a member of the Texas and Southwestern Cattle Raisers Association (TSCRA).

Implementation begins at the end of the development phase of the estate planning process, when the legal documents are drafted by attorneys and tax professionals. Roberts encourages her clients to read each document paragraph by paragraph so they fully understand every facet.

"If I have done my job properly, I have educated you on every part of the plan," she says. "If you are estate planning and you are not clear about any aspect of the plan then do not move forward until you have clarification."

Once a business owner is confident in the framework of the plan, he or she will begin implementing the outlined steps. Often an estate plan will require the individual to rework wills and trusts, as well as purchase investments and insurance policies.

"We encourage people to get their plan set as soon as possible," Roberts says. "However, we also suggest allotting yourself several months to implement the necessary changes. It is better to be thorough than to rush. Again, you must make sure to read and understand every legal document."

The implementation phase also includes opening a dialogue with family members or partners who will be directly involved in receiving assets. Roberts recommends that individuals or couples not involve [adult] children during the initial estate planning process, instead allowing the estate planner to work without distractions. When the next generation is finally included in the conversation during implementation, Roberts suggests that only the children, and not their spouses, be involved in the conversation.

"Spouses usually complicate the situation," she said. "Parents usually do not want the influence of the spouses in the room."

Of course, there is the potential that the child may not have a spouse, be through college or even eligible to inherit property. Estate planners must take extra steps to properly ensure passing their estate to children younger than 18 years old, who cannot legally inherit assets.

Roberts also suggested that the financial guardians be kept separate from health care guardians. "It is wise to keep them independent of each other," she says. "If you have a sister and she passes away and you become the guardian for your niece in all matters, it means you, as the guardian, may get something while the niece does not. It's best to have someone else handling the financial matters."

Arthur Uhl, a TSCRA director and chairman of the TSCRA Legislative and Tax Committee, specializes in estate planning for those in the agricultural industry. Uhl explains, while the family dynamic can complicate the estate planning process, the process can also benefit the family.

"It is difficult to go through sometimes, but it usually ends up being helpful in the long run," Uhl says. "It forces the family to sit down and have a discussion about how the property, usually a ranch, will be run in the future. When the family focuses on what is best for each other and thinks about how much money could be saved by going through estate planning, they are usually motivated to get it done together."

Uhl suggests owners of small farms and ranches that do not meet the tax threshold have the estate planning discussion. "The process is helpful," he says. "Even if you don't have to develop a family partnership and trusts, just going through the discussion is ordinarily a huge step in the right direction."

Implementation of the estate plan may also include some form of annual gifting, which allows the business owner to slowly shift assets to the next generation free of a tax burden.

Every year, an individual can give $13,000 worth of property to anyone and be exempt from the gift tax. The owner must prove the value of the property, which usually includes the need for appraisals. This gifting process takes additional time, expense and personal dedication. "This is not a practice that most people have done on an ordinary basis," Uhl says. "It takes some discipline to do things like this every year, but in the long run it is worth it."

Both estate planning experts, Roberts and Uhl, say that property owners can modify and update their estate plan through the years. "It's better to change plans," Roberts says, "than be caught without one."

In extreme situations, such as a diagnosis of a fatal disease that requires immediate action, business owners with no estate plan in place will face penalties when they transfer assets.

"You cannot do things in anticipation of death," Roberts said. "If you are moving assets quickly, the IRS will get you." However, if the individual has a documented estate plan — even one that is not fully completed — he or she will be covered in most cases.

While estate planning remains a complex and sometimes difficult subject to discuss, both Roberts and Uhl see it as an absolute must for ranchers. In fact, both experts have the same final piece of advice — don't wait to begin an estate plan.

"The worst thing they can do is put it off," Uhl says. "People have put it off and then something happens. It costs them millions of dollars. They are forced to mortgage the ranch or come up with cash to pay the estate tax. People have lost the family ranch because of estate taxes."

Roberts echoes Uhl's sentiment with a final question for all those considering estate planning, "If you've taken a lifetime to accumulate your wealth, why not take a year to put in place a plan that will keep it in the family?"