Dear Michael: We met with some estate planners a few years ago. One worked with an insurance company and we met with the attorney they recommended for us. They advised we buy life insurance and long-term care insurance. The insurance they had us buy was only a quarter of the value of the farmland going to our farming son. Our farming son pays the premium on this. We have a five-year long-term care policy, but what happens if we are in the home longer than five years? All in all, it felt like there was a lot of loose ends in our plan we didn’t like, but they were the experts so we let it go on.
As we get older though and see what’s happening with our friends, we can see where our farming son – if we live into our 90s – won’t own any land until he’s in his 70s. The insurance we bought was small at the time and we if we live long enough might not be enough to buy a car by the time we die. We just weren’t comfortable at the time and as time goes by, I have more and more questions. – As Time Goes By
Dear As Times Go By: Most people, when they start the estate planning process, see themselves as dying within 15 to 20 years. However, statistically speaking, at least one of you will easily live into their 90s – some 30-plus years into the future.
The problem with estate plans that don’t start the conveyance of property and ownership today to your farming child is that your farming child won’t have the time to accumulate anything until you die – which could be past his farming career.
A good estate plan should be based on how we start transferring or conveying assets from your generation to the next today. If we can see over time this transference will work out – income wise for you and asset wise for your farming child – then the plan should be put into action today, not the day you both die.
The first mistake was when you left the first or final estate planning meeting and were feeling like there were still loose ends. Usually that little gnawing in your stomach is a good sign that your estate planning wishes weren’t being dealt with in the way you wanted them to be done.
Second was not getting some type of conveyance going with your farming son. Now I imagine the insurance premium he is paying is a pretty hefty price each year, so as a combo idea of moving property and covering the conveyance of assets today, couldn’t you have come up with something whereby the premiums paid would be considered a payment on portions of the land? Each time he pays enough premiums to pay for a quarter of land, give him title to the quarter of land.
If you’re worried what happens if you go into long-term care for longer than five years, you could transfer the deed to him while keeping a life estate for yourselves.
You’d get the income you’d want for the rest of your lives and your son would be assured – after five years – the deed would be protected from long-term care costs. If you own it until you die, there’s a lot of bad things that can happen before you die – long-term care being just one of them.
Again, as he pays you rent on the land or pays premiums on the policy, when you feel he’s earned some land, give up your life estate to him. If you’re worried about income, just raise the price on the rest of the land. Eventually, if you live long enough, his base is going to be strong enough to withstand any other claims on the property and the amount of insurance you bought will be the right amount as his estate grows and yours diminishes.
The last generation was pretty good about transferring property to their kids while they were still alive. Of course, they had this new-fangled thing called Social Security to provide income so it was easier to do.
But somewhere between here and death, the conveyance of property should be in motion and your wills should just cover what happens if you come up short by dying too soon.