Insurance could be the solution to your estate planning problem

Dennis Foster Special to the Farm Forum
Farm Forum

Last month we opened up a discussion on gifting as it relates to the current tax codes. We must be aware this is always a moving target and perform our planning with the facts at hand. With the current federal and gift tax exemption level at 11 million dollars per person, I would recommend seriously considering doing something in the short term.

I am sure the first question entering most of your minds is that this this all good and fine. But, who has this kind of money just lying around? Not too many, as the vast majority of most folks net worth lies in the very ground that they work. It may be wise to start considering moving some of this land down into the hands of your children or even grandchildren. My advice is usually centered on providing insight and ideas to achieve family goals after a long period of listening. As it relates to family members, my advice is generic in nature, and I generally remain neutral. Except in the case of the disposition of land. Unless there are some very unusual circumstances, producing ag land is always best passed fully intact to those who will be working it for the next several decades and stewarding it on to their own offspring. I am not being pessimistic, just pragmatic. I have seen, as I am sure you have, far too many instances where otherwise loving siblings can quickly become estranged due to land issues. Throw a few in-laws in the mix for fuel and just watch it all burn down.

No, I am not advocating that we leave the non-farming kids out in the cold. We simply need to figure out an equitable, not necessarily equal, amount of cash assets they can receive in lieu of land. Once again, the amount of cash needed to do so is not always readily available. Even if you have significant cash reserves, I would recommend you leave them as just that, reserves. After all, this is farming and who knows what perils lie ahead? So, where does one come up with all of the money needed to effectively execute planning of this nature?

As much as some folks may find it morbid or just have a general disliking of insurance, life insurance is quite often the best solution. If you are in moderately good health and not beyond the age of 80, it can prove to be the most cost effective financial tool available. The younger and healthier you are, even better. In the case of a husband and wife, a Survivorship Life Insurance policy which insures both spouses and pays upon the death of the last, offers even greater value. Typically, about 50 percent the cost of insuring one spouse. And, it allows us greater underwriting flexibility in that we can have spouses with some health issues or even one that is un-insurable and still obtain a policy at reasonable rates. This is due to the fact that the insurance company is spreading the risk over two lives.

Please be aware that this is sophisticated planning and requires proper ownership of any policies so as to not inadvertently have the policy proceeds ending up in the final valuation of your estate. It also requires the expertise of financial advisors with vast experience in recommending and then shopping for and implementing the very best plan based upon your health and your family’s needs. I will provide you with some case studies, strategies and caveats to avoid over the next several months.

Dennis Foster has been helping families with financial and estate planning needs for 25 years. He welcomes comments and questions and can be reached at 605-887-7069 or dennis@nvc.net.