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Where Can a Family Cut Corners, Including Estate Planning?
Submitted by T.J.
We are always looking to become more efficient. With spring planting delays and prevent planting this year, we’re trying very hard to trim even more expenses. We have land and machinery loans, operating loans and input expenses, property taxes, insurance payments – and we have to live. It is hard to think of doing any estate planning, especially when we know it may result in additional expenses. How can we do economical planning? Or should we just wait?
This is definitely a challenging time with finances, but I tend to think the opposite in regard to the need for estate planning. I think there’s more need than ever right now. This is exactly when you should be thinking of estate planning and, yes, it may cost you something to do this. There are three times when estate planning may cost you money.
- Initial planning. I have worked with attorneys who do a fabulous job of planning and getting wills or trusts, entities, powers of attorney, and land deeds all done for about $1,500. I’ve also heard of people paying a planner $15,000 and their attorney another $20,000, so clearly there is a huge range of setup costs. Understand the costs up front. You don’t always get what you pay for.
- Funding costs during your lifetime. Usually these costs boil down to dividing ownership in the future or stockpiling cash now, or paying a life insurance premium, which are all difficult to do.
- Estate closing. Potential buyouts or equalization costs plus estate administration fees. The cost range could be minimal to astronomical depending on how you handled funding and initial planning.
So, where can planning expenses get squeezed out of your cash flow?
- Machinery cost seems to get attention. Excess machinery or constant trading can add a lot of expense.
- Review loan structure and length. Sometimes restructuring loan length or terms can create additional cash flow to allow you to do planning. Check if lower interest rates are an option.
- Review realistic farm valuations for the next generation. Yes, $7 corn made some people feel real generous to all family members; $3.50 corn gets people back to reality. Review how your farm will be valued and make sure it is documented. This may create the need for less insurance policy or a smaller future loan.
- If using life insurance, consider lower cost options. The insurance need may be clear, but a lower-cost term policy may provide protection until the ag cycle turns, and then a guaranteed policy could be implemented later. If you already have a permanent insurance policy in place, be very careful about skipping premiums or taking a loan out of the policy. That can quickly turn a policy upside down or affect how long it is in force.
- Partially fund the plan. Maybe it is best to use some financial tools today and some loans later as long as it cash-flows both now and later.
There are definitely ways to cut some corners on estate planning expenses, and I always bring everything back to a cost per acre.
A land payment is probably the last payment you would ever think about skipping because the consequences are known. However, in tough times, you may be quick to consider skipping estate planning or a life insurance payment. Yet, if properly planned, you should consider a life insurance payment to be like a land payment that is preserving the farm for another generation. At that point, you may have a different perspective and attitude toward prioritizing that expense.