We are considering putting our land into a life estate to our farming son who has been with us since high school. In fact, he and his family are getting to the age where he has a son who is considering ranching and farming in the next ten years or so. The grandson is very active where are granddaughters don’t seem to show much interest. We have our estate set up so our son will receive most of the land and he can purchase some of the land from his sisters.
Is there anything else we should be considering?
– Last Word
Dear Last Word:
As the size of the farm estates have grown and grown, I think it behooves you to check out and see what kind of estate plan your son and daughter-in-law have in place.
Let’s say your estate is worth three to five million dollars – almost a modest amount in farming these days. If you had three to five million dollars in cash or, let’s say for example, gold bars, and you needed to put them somewhere for safekeeping. Your goal was to keep these gold bars past your death and through the next generation and perhaps benefiting your grandchildren someday.
I think if you were looking at banks or other places to store these bars, you’d probably want to know a lot about that bank. Who works there? What kind of security they have? How can you be assured that if the bank changes ownership that your gold bars will still be sitting there? Do all the employees have a good background check?
Heck, you’d probably want to go in and take a look at their big safe they kept in the back where your gold bars are going to be kept.
In this same vein, especially when using a life estate deed to transfer ownership to your son, you want to make certain your son has his ducks in a row. With a life estate deed, he will own the deed while you will own the rights to the property – income and usage for life. Once you die, those rights pass to your son.
This is a very definitive action setting up a life estate and I like it when people make decisions now instead of depending on their will to be held up. However, just like the gold bars, I’d probably want to sit down with my son and ask “What happens to our deed should something happen to you? Do you have a will or an estate plan in place? What are your security measures?”
The interesting thing about these ‘gold bars’ is they continue to produce income even while stored away in the life estate deed, so they’re worth much, much more than a traditional gold bar.
Once you put the deed into his name, that deed is ‘HIS’ property and any changes that occur in his life after this gift may affect this deed. What happens to this deed should he die?
Do you automatically want it going to his spouse? Or do you have other things you’d like to consider – such as putting it in a place where his spouse might receive income from the property but not the right to change or sell the property should her life change greatly after the death of your son?
Moving these farms from generation to generation means – with their current net estate value becoming so high – that estate planning needs to become two sided. The one who is giving or leaving the estate to heirs – and the one who is receiving the lions share – perhaps because they have worked with you in building this estate.
However, both generations need to have an effective estate plan in place and these estate plans must be matched up to work hand in hand in this transfer.
Unfortunately, most of the younger generation only has either no will or estate plan at all or the simple will whereby everything will go to my spouse or divided between my children upon our second death. Not much of a plan considering they will be receiving a multimillion-dollar business from you.
If you’re ready to give this land to them via a life estate, then it’s time for them to have a proper estate plan in place themselves.