Land and Legacy
Estate and Long-term Care Planning Are Important
By Amy Rowan
My grandfather owned and farmed over 1,000 acres, which had been homesteaded by my great-grandfather in 1917. Some of the land also had mineral and gas rights. He was a widower when he passed away in 2012, leaving the ranch to his children and stepchildren. My dad was one of the heirs. When he passed away, his children, including me, inherited his share. That made a total of 12 beneficiaries of my grandfather’s estate. Eleven are still living.
My grandfather had a will in place that specified he wanted to keep all of the acreage intact in a Limited Liability Corporation (LLC), some of which is still farmed today, and the mineral rights were to be divided into equal shares for all of the heirs of my great-grandfather’s original estate. The will also stipulated the estate was to be left to all the children and their heirs; spouses were excluded from the estate.
The result was confusing and a logistical and tax nightmare for everyone. Thankfully, between the children, stepchildren, and grandchildren listed in the will, there was a consensus on how the land and equipment should be handled. It took over five years to get all the logistics lined out and a lot of attorney’s fees. This could have torn our family apart. My grandfather’s heart was in the right place; the flaw was not having conversations about the logistics of having an LLC with 11 heirs.
Estate and long-term care planning are important
Our family’s inheritance issues are not uncommon. The average age of farmers and ranchers in Colorado is 57.6. Montrose, Delta, Ouray, San Juan, and San Miguel Counties have over 2,600 farms and ranches; 1,400 are owned and operated by someone over the age of 65—600 over the age of 75.
Estate and Long-term Care planning are especially important for farmers and ranchers because the business is most likely the livelihood of their families and future generations. The price paid in the beginning for estate planning could save thousands of dollars in the end, and possibly save the farm.
Please don’t say, “my kids can figure it out.” Expectations and goals between the younger and older generations may be very different. Open communication and understanding your successors’ goals are crucial, for a successful transaction.
Surveys show that 58 percent of farm and ranch businesses have not started succession and estate planning; only one percent will be transferred to a third generation. Thirty percent have not considered a successor; 63 percent have started planning after the owner has reached age 65.
Not only is the land being transferred, but the business knowledge, skills, labor, management, control, and equipment are transferred, too.
Understanding tax codes, inheritance vs. gifting taxes, long-term care, and Medicaid programs, and starting conversations now are crucial to protecting heirs for generations.
It is important for all parties involved to understand the process and to be able to address these questions:
• What exactly is the business, how is it structured, and what are the assets?
• What buy-sell agreements ensure equitable and orderly transfer of assets?
• Are there agricultural conservation easements in place to protect lands from development that can facilitate transfers from one generation to the next?
• How can well-planned gifting transfer assets and reduce transfer taxes?
• Are there life insurance policies in place to provide money at death to fund buy-sell agreements, establish trusts, provide for non-farming heirs, or pay estate settlement costs?
• Are living will, health care proxy, Medical Power of Attorney (MPOA), and Power of Attorney (POA) in place that will allow an agent to make financial and personal decisions on behalf of you in case you can’t?
• Will your heirs benefit from a trust to provide asset protection and financial security for surviving spouses, children, grandchildren, and future generations?
• Is there a will in place to provide instructions about how you want your estate assets to be distributed?
Having conversations with family and friends about long-term care estate and succession planning are hard conversations to have, but having your heirs inherit a business they don’t want or understand is far more difficult and costly. The list of discussion topics above cannot happen in one sitting, or even ten. These conversations should happen over the years because goals, expectations, the economy, land values, and taxes will change over time. Meeting with a trusted advisor will help start conversations and organize your thoughts around the legacy you want to leave.