Is a Will Enough for Your Estate Plan?

Written by: Aaron Sletten, Consultant - Succession and Retirement Planning

Farmers have long relied on a will as the primary document for passing their assets, including farmland, to the next generation. A will has historically been seen as sufficient for ensuring farm operations continue smoothly after the owner’s death and the land remains within the family. A will continues to be a critical document in any estate plan as it allows for specifying who will inherit assets, designate guardians for minor children, and name personal representatives to handle the estate. However, estate planning has changed in recent years. The complexity of tax laws, the rising value of farmland, and the need for more sophisticated asset protection have made it clear that a will alone is no longer enough.

Multiple estate planning tools must be considered to ensure a person’s wishes are honored, their families are protected, and their legacies are preserved. Incorporating other estate planning documents, such as Revocable Living Trusts, Powers of Attorney, Health Care Directives, and Limited Liability Limited Partnerships, specifically related to land ownership, can make a smooth transition.

Limitations of Only Using a Will

One of the limitations of a will is it must go through probate—a legal process where the will is validated and the estate is administered. Probate can take months or even years to complete, be expensive, and is open to the public, which are significant concerns for farming families. Farms may face personal and operational financial strains due to an inability to operate as usual during this time. Additionally, court fees and attorney fees associated with probate can be substantial. These expenses can decrease the estate’s value, leaving less for beneficiaries. Probate is also a public process, meaning anyone can look up the details of the estate, including the value of assets and who will inherit them. This lack of privacy can lead to unwanted attention and potential conflict.

A will provides a straightforward way to distribute assets. Still, it doesn’t offer the flexibility to address more complex situations like estate tax planning, asset protection, or special needs trusts for vulnerable beneficiaries. Farmland values have increased in recent years, driving many farmers’ estate values up. Without proper planning, heirs could face significant tax liabilities that might force them to sell off a portion of the farm to pay those taxes. This is especially important for Minnesota residents or individuals who own Minnesota property, as Minnesota estate tax limits are significantly lower than federal estate tax limits. North Dakota and Wisconsin do not have a state estate tax separate from the federal estate tax.

Another limiting factor is that wills take effect only after death. It does not provide guidance or authority if a person becomes incapacitated and unable to manage their affairs. This gap in planning can leave the family in a difficult position.

Proper asset titling is crucial as a will can only control assets owned by a person upon their passing. Joint tenancy ownership with rights of survivorship passes to the remaining owner(s). Accounts with beneficiary designations will pass to the beneficiaries regardless of what the will states regarding these assets.

Additional Options Beyond a Will

Consider adding additional estate planning documents to address the limitations of a will. These tools can help protect assets, minimize taxes, and ensure wishes are followed.

Revocable Living Trust

Avoids probate, maintains privacy, and manages assets during a lifetime. Unlike a will, a trust takes effect immediately upon its creation and continues to operate after death. Assets held in a Revocable Living Trust are not subject to probate and can be distributed to beneficiaries quickly and privately. This benefits farmers who want to ensure that the farm continues to operate smoothly without the delays and costs associated with probate. This type of trust allows for control over the assets during a lifetime and can be amended or revoked at any time.

A Revocable Living Trust also provides a plan for managing assets if a person becomes incapacitated. A successor trustee can be designated to take over management of the trust. This ensures the farm and other assets are managed according to the predetermined wishes. A Revocable Living Trust does not offer immediate tax benefits, but it can be part of an estate plan that includes other documents to minimize estate taxes.

Durable Power of Attorney

Allows someone to act on a person’s behalf in financial or legal matters. This includes paying bills, managing bank accounts, handling investments, and making decisions about the farming operation, even if a person becomes incapacitated.

Health Care Directive

Specifies a person’s wishes regarding medical treatment where a person is unable to communicate. A Health Care Directive can state preferences about life-sustaining treatment, pain management, and other critical medical decisions. This document is vital for farmers and ranchers because it clarifies and guides families and medical providers, reducing the emotional burden on loved ones during difficult times. Clearly outlining wishes prevents conflicts and ensures medical preferences are respected.

Limited Liability Limited Partnerships (LLLP)

Protects and controls ownership of land. An LLLP is a partnership that offers liability protection to its partners while allowing them to maintain control.

The general partners manage the entity, while the limited partners have an ownership interest but no day-to-day management responsibilities. The general partners and the limited partners are commonly the same individuals. This structure protects the limited partners’ personal assets from business liabilities and can shield the farm from personal creditors of the partners.

A LLLP can also be an effective tool for transferring farm ownership to the next generation while retaining control during a lifetime. Ownership can gradually be transferred without giving up control by gifting or selling limited partnership interests to children or other family members. This approach helps reduce estate taxes by removing the value of the gifted portion from the estate.

LLLPs can offer tax benefits, including potential discounts for lack of marketability and minority interest. These potential discounts can reduce the overall value of the estate and estate taxes.

A comprehensive estate plan can ensure a smooth transition, protect your assets, minimize taxes, and ensure the wishes for you and your operation are followed. Consult the AgCountry Succession and Retirement team to devise a customized plan to achieve your goals. Contact your local AgCountry office to learn more.