Tri-State Neighbor: South Dakota Farm Newspaper

Dear Michael: We know we should get something done with our estate plan, but every time we consider it, we just put it off because we really don't know where to start. Is it really that important that we have an estate plan? - Putting it Off

Dear Putting: Let me walk you through a few things, and you can decide if it's something you can or should put off to a later date.

If you die without a will, do you know who the heirs of your estate are? Most people would assume it's their spouse. If the property were owned as joint tenants, this is true. However, for anything else - sole ownership, tenants in common, etc. - if a person dies without a will, half of the property goes to the children and half plus a spousal allowance ($104,000 or so) will go to the spouse. If the children are minors, the property will be put aside in trust for the benefit of the children until they reach the age of 18 and then given to them.

Dying without a will also means the court will have to appoint a personal representative - not necessarily a spouse - and a guardian for the children, if they are minors. The surviving spouse would have to petition the court to be appointed for these duties, which means paying an attorney to file petitions. In other words, a lot of money would have to be spent then versus the cost of a very simple will now. Probate costs will rise from 2-3 percent to 8-10 percent - of the entire estate. With land prices climbing, this isn't a factor you want to ignore.

Putting off estate planning also leaves the next generation in limbo. Many a second generation farming heir has come to me after leaving agriculture because their parents wouldn't sit down with them and share with them where they stood.

Who would want to work in a family-owned business their entire lives only to find out that when their parents die they inherit exactly the same amount as their siblings who left the farm years ago?

Failure to communicate has led to the loss of more farms than drought, debts or bad prices in the past 10 years. Because Dad and Mom have failed to communicate with the next generation about their plans, the next generation has ultimately left the farm.

Putting off estate planning has also led to many farmers and ranchers retiring too early or too late and finding out they don't have sufficient money to live when they do retire. The subject of retirement just seems to bobble around in a farmer's head until one day he decides to set a date for the auction sale and rent out the land. Many people spend more time planning a vacation than they do planning for their life after they retire.

This leads to a lot of mistakes made and losses due to income taxes, loss of value in property and other factors. The decisions you make the four to five years before you retire will determine the quality of your life for the next 20 to 30 years after you retire. People are still short-sighting their retirement years by thinking they have enough money to live on for the next 10 or 15 years of retirement only to find out inflation is eating them alive in 10 to 12 years instead, and their lifespans are now stretching beyond what they anticipated.

Did you know last year - 2007 - was the first year in history our government spent more money on medical programs for the elderly (Medicare, Medicaid) per person over the age of 65 than they did for Social Security payments? The average SSI payment was $13,184 while total healthcare benefits payout averaged $14,105? The average amount for medical payments is up 24 percent since 2001.

With the baby boomers just getting ready to retire, Medicare spending is expected to rise from $476.8 billion to $862.6 billion by 2016 and the cost per non-senior household to pay for the over 65 crowd will be over $19,000 per household annually.

Obviously, this is not a trend the American public is going to be able to handle in the future, so expect further tightening and restrictions of laws regarding gifting and Medicaid planning. If you are a farmer and rancher, you need to buy long-term care insurance to protect your assets from the costs of a health or injury in your elder years not covered by Medicare or Medicaid.

Estate planning is just a little bit more than worrying about what to put in your will - it entails your plans for growth, plans for retirement, ways of protecting your assets and income from over-taxation, and how to plan for your estate once you become elderly.

If one of the points listed above didn't hit you right between the eyes, then you probably will lose everything you've worked for, because you are choosing to hide behind the “we didn't know where to start” excuse.

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