Estate Planning, Discussing business and goals
Casper – “Through estate planning you come to realize that stuff is stuff, and there are lots of ways to deal with it. The hard part is for the people dealing with the estate to decide how to split everything up. It’s easier to deal with the stuff, the hard part is how to split that stuff up,” explains Farm Bureau Financial Consultant Frank Kelly.
“I suggest determining goals, and when I sit down with a person for the first time, I sort out in my mind if they want a simple inheritance plan, or if we’ll deal with a legacy plan,” adds Kelly.
“We separate them for this reason – in my mind an inheritance plan is giving away something, like the liquid assets, and the business won’t go forward. It’s something along the line of saying, ‘Here’s X amount of dollars, hugs and kisses. Love, Mom and Dad. Spend it wisely,’ and almost every inheritance is spent within 18 months after it’s received, regardless of the amount,” explains Kelly.
“To me, the second type of inheritance, a legacy plan, means feeding the same cows the day after the funeral as the day before, just with less help. Legacy planning is keeping the business plan and moving it forward, assuming it is a viable business plan,” notes Kelly.
He adds that within legacy planning there are two separate conversations that occur simultaneously. One is a business conversation, and the other is the estate planning conversation.
“I can have a conversation with you about your business plan, and never mention estate planning. It’s an irrelevancy when discussing the business aspect. But, I can’t talk about your estate without talking about your business.
“If you and I aren’t partners, it’s really not my business how your estate is divided up. But if I’m in business with you, and there’s a son, or another business partner, I have every right, and need, to know what will happen to that business after death. If done correctly, the business and estate conversations can dovetail nicely together into one cohesive plan.
“For example, my brother and I have been partners for 30 years, and we both run very different businesses. I get along very well with my brother, and I get along very well with my brother’s wife, and he gets along very well with my wife. But, while I like my sister-in-law, I don’t want to be in business with her. I certainly don’t want to be in business with her next husband, if that should ever happen. Likewise, I really love my nieces and nephews, but I don’t want to deal with a 24-year-old man with a much different outlook on how things should go than I do, just because my brother happened to die.
“So we have a business plan that deals with the issues of what happens if one of us becomes disabled, or dies, or wants to retire. Those are all important issues I think need to be addressed in an estate plan.”
He explains that in Wyoming there are two basic ways to pass property from one person to another when someone passes away.
“The first is probate, and in Wyoming that consists of $750 plus two percent of the gross estate. To some people the big thing in estate planning is to avoid probate, which can be quite expensive, especially with large estates that aren’t difficult to deal with. But, at the same time, most of that expense is deserved if an attorney has to clean up your mess,” comments Kelly.
He says the second way to pass property is by operation of law.
“This supersedes probate, which is why it isn’t subject to probate. But, if you and your wife, or husband, have right of survivorship, it doesn’t matter what the will says. Nobody really cares because of the right of survivorship, and it will pass by operation of law regardless of the what the will says, unless it’s declined by the heir,” notes Kelly.
“At first death, everything goes to the survivor. Then say the second spouse dies. Now everything is subject to the will, and probate, because it was solely in their two names,” explains Kelly.
“So many times in estate planning I see a couple with three kids, and two are off the operation and one is still on it. At the end of the day, they want a will that says everyone gets an equal share, and while that certainly can be done on paper, it may not be equitable. Especially when one kid has been working on slave labor and sweat equity for the past 30 years of his life, and when he gets to the end where he’s going to be in charge, he suddenly learns he has to pay off two siblings who have been off doing different things.
“That becomes a very difficult issue, and a lot of people play things very close to the vest in regard to their estate plan, and I think that’s appropriate. But, from a business standpoint, I think that if you have a sibling, or child, working with you, they have every right to know that that plan is, especially if it affects their livelihood.”
Frank Kelly spoke during the Wyoming Stock Growers Association Winter Roundup in Casper in December. Heather Hamilton is editor of the Wyoming Livestock Roundup and can be reached at email@example.com.