What if Your Heir Dies Before You?

The idea of a child dying before a parent is a heartbreaking thing to consider. However, these sad events do take place. The difficulty of discussing this might lead you away from thinking about it when doing your estate plan, but that’s not a productive response. The article “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?” from Carroll County Times tackles this topic without flinching.

First, review your will with your estate planning attorney to see if your will has already made a provision for this event. Your will should be reviewed from time to time anyway, especially when there has been a major tax law change. If there is nothing in your will currently addressing this situation, you can change the will to what you would want to happen.

If you don’t make this change and a child predeceases you, the laws of your state will govern what happens.

In Maryland, the law of the Estates and Trusts Code says that your child’s estate will still receive the share you had designed in your will, regardless of whether they died before you. Therefore, whoever is an heir to your child’s estate, will receive what your deceased child was awarded in your will.

The law also states that the legatee—your deceased child—must be identified in the will to receive whatever share of your estate you directed. If you don’t want to leave a portion of your estate to the heirs of your deceased son or daughter, you must specify exactly how you want your estate to be divided, if one of your children should die before you do.

Is it worth getting into these specifics? Yes. For one example, if you’ve had a bitter feud with a son-in-law for decades and you don’t want to leave him anything, then you’ll want to make sure to specify that in your will.

Each state has its own laws governing what occurs when an heir predeceases the parent. For example, in the past in Maryland, a legatee’s right to receive a share of the estate did not enjoy any protection, if he died before the author of the will. If the will did not contain specific directions on how that share should be distributed if the legatee died before the author of the will, the share simply remained in the estate, and the legatee’s heirs did not receive any assets.

Speak with a local estate planning attorney to clarify what would happen to your assets and what you would like to have happen.

Reference: Carroll County Times (Dec. 21, 2018) “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?”

Legacy Planning for Farm and Ranch Families

An inheritance is more than money or property, especially when it comes to family farms, ranches and businesses. Many survive for multiple generations, says the Woodward News in the article “Plenty to consider in legacy planning,” but it takes planning.

Knowing that one day your grandchildren, and hopefully their children, will walk the land their great-grandparents did, and take the same satisfaction in knowing that the work they do, is a part of our country’s economy. Every family’s situation is different but one thing they all share in common, is that succession goals need to be evaluated critically, even though there is great emotion involved in passing on a legacy.

Dividing assets, sharing control and management decisions and transferring ownership are all things that must be examined and formalized as part of a succession plan.

For starters, determine the overall goal. Every family’s goals are different. Should assets be held for end-of-life-care for aging parents, passed on to children, donated to charity or are they needed to ensure the successful transition of the business to the next generation?

People work hard their whole lives to accumulate assets, so it’s important to have a legacy plan.  In this way, everything you’ve worked for is preserved for the next generation or available for your needs as you age.

In 2019, gift and estate tax exemptions are up dramatically, but strategic planning still needs to be done.

For farm families, the Farm Journal Legacy Project offers printable downloads, including a succession planning action guide, family meeting agenda, conversation starters and a goals clarification worksheet.

Family meetings will need to tackle some topics that may benefit from the presence of an estate planning attorney, who is experienced with family farms and succession planning.

  • How will the transfer of property, including farm equipment, property, and livestock, be done with minimal taxes due?
  • How can the non-farming members of the family receive their fair share of their inheritance, without taking away valuable resources needed to keep the farm or ranch going?
  • What resources will be available for the older parents to live on, when they retire?
  • Can the farm support multiple generations?

Succession planning that works best, begins long before the farm family is thinking about retirement. Determining roles and responsibilities and setting accountability for those roles must start happening long before the oldest generation steps away from the day-to-day operations of the farm or ranch.

Reference: Woodward News (Jan. 2, 2019) “Plenty to consider in legacy planning”

How Do I Plan the Succession of My Business?

The San Antonio Business Journal’s recent article, “Plan your exit even if you never plan to leave your business,” explains that many owners think it’s okay to delay preparing for their business exit. Some think there’s no reason to plan for their exit whatsoever, because they’re willing to die in the business. Owners should always have an exit plan prepared and ready. Things change, like health, the economy, and opportunities. Be ready and consider these three key ways exit planning can help you and your business—even if you don’t intend to leave.

Decrease your taxes. Whether you ultimately decide to sell your business, transfer ownership or die working, you probably don’t want to pay more taxes than you have to. There are two ways exit planning can help minimize taxes, even if you truly want to work until you die. If your business value increases, your estate can benefit from a step-up in basis, if your ownership transfers pursuant to your estate plan. This saves your estate or beneficiaries from paying duplicate taxes on the entire business value.

The lifetime exclusion for gift and estate taxes is now to the point where most small and mid-sized business owners don’t need to pay estate taxes, if owners have created an appropriate estate plan. Your exit plan lets you leverage these benefits, since estate planning is a vital component in proper exit planning.

Protect your values. If you created a work culture that’s so unique and strong that it helps your company stand out in the marketplace or your business gives back to the community through charity work, exit planning lets you pursue and preserve your progress toward those objectives. Exit planning strategies can foster the culture you’ve built, protect the employees who made the business a success, and help you build the legacy you want. Exit planning can help keep your chosen values front and center and protect its value, even without your presence.

Growing your business. Everyone wants their business to grow in value, but many business owners get to a point where they can’t grow the company any more, by simply doing the same things they’ve been doing. However, exit planning concentrates on building business value, whether you exit or not. These activities can help you increase your business’ growth potential, by emphasizing value drivers. Those are the aspects of your business that make it attractive to buyers. When it’s done the right way, installing value drivers can make your ownership even more fulfilling—concentrating on certain value drivers can let you focus on only your favorite tasks within the business and delegate your least favorite responsibilities to other qualified employees.

Use exit planning to address concerns about the future of your business, family, and employees.

Reference: The San Antonio Business Journal (October 16, 2018) “Plan your exit even if you never plan to leave your business”