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Some Musings on Modern Estate Planning

Photo by: WPeithmann

By William A. Peithmann

Farm estate planning is definitely not what it used to be.

For one thing, farm operations are bigger than ever. Fewer, and older, farmers are farming more and more acres, with vastly more expensive equipment.

Bigger operations mean more complicated financials.

That leads to more intricate forms for conducting business;

i.e., fewer sole proprietorships and many more limited liability entities of potentially infinite duration.

Introduction of the federal generation skipping transfer tax has had the unintended consequence of alerting both lawyers and farmers to the many facets that multi-generation planning affords for continuing family control in addition to the income and transfer tax advantages.

Drafting tax-advantaged trust schemes has sharpened our command of the intricacies of trust law, and the pliancy of powers of appointment. The result has been new transfer models allowing astonishing access and control to family members while separating farm assets from the reach of private creditors or estranged family members.

More flexible planning helps fit new needs as family sociology has evolved even more, or at least faster. Fewer first marriages seem to endure, and what constitutes a lawful marriage is different now. Surviving spouses are surviving longer, and where second marriages are involved many of those surviving spouses have little connection with the other spouse's descendants.

If more family members increasingly are heading away from the farm, those same family members still want their "fair share" of the family wealth once the preceding generation leaves the scene. With an ongoing farm operation what's "fair" can be hard to measure.

For those far-sighted families willing to think and plan long term, and with the discipline to tend to some very important administrative details, it's hard to beat a well-constructed trust for sustaining operations through two or more generations.

Donative trust law is a part of the larger law of gifts. A gift is a transfer of property that the donor is not legally required to make. As an exercise of free will, the donor/settlor has discretion to make the gift to any one or more persons or entities, under such terms, conditions, and limitations, as he or she selects. The terms of the trust agreement, therefore, are simply a statement of the rules that govern the transfer, without which there would be no gift at all.

Trusts are as elastic as the imagination, and for making dispositions of property there is probably no tool more versatile. (But with versatility comes complexity.)

A trust can be created for any purpose that is not illegal or contrary to public policy.

The duties of the trustee are what the creator of the trust chooses to impose; and, the interests of the beneficiaries are such as the creator may choose to confer.

In effect trust law allows the craftsman almost a blank slate. What the mind can conceive, in terms of long term planning and thresholds of benefit and control, a skilled draftsman can assemble.

Assets in trust are usually immune from the claims of the beneficiary's creditors - which can include estranged spouses.

Although there are many good reasons to use a professional fiduciary, or farm manager, to administer the trust property it is by no means required. Family members can and frequently do serve as their own trustees. Indeed, a family member can be trustee and beneficiary of the trust at one time, and this is frequently the donor's intention to empower people who are also the objects of his/her bounty. But it must be done carefully, with due regard to the competition of duties and interests of all concerned.

Competent farm estate planning counsel are increasingly rare. It is a difficult discipline to master, requiring as it does a full command of the rudiments of the estate and gift tax laws, the lawful techniques available to reduce the burden of transfer tax and other risks of loss, the non-tax issues relating to business structure, operational control, the disposition and use of assets and the protection of intended beneficiaries, and the legal structures best suited for current and future asset administration.

And ultimately, to one degree or another, we ag law lawyers are always talking about farm ground - timeless, fertile and wholly immovable, its wealth to be extracted only through skillful husbandry that liquid assets do not require.

Mr. Peithmann is an attorney in Mahomet. He is a past chair of the Illinois Bar's Trusts and Estates Section, and a Fellow of the American College of Trust and Estate Counsel.