How to Handle an Outdated Estate Plan

Problem: 

We paid good money for sophisticated estate plans years ago, but after reading many articles, I’m feeling unsure. We have thick binders filled with entities and complex trusts, promising to protect us against everything. Yet I can’t find anything specific to our operation or family situation. 

We bought life insurance so our farming son could buy out his siblings, but I just learned the policies will lapse once the cash value runs out. 

Land prices climbed so much that our original plan is probably irrelevant, and anyway, not all of our kids agreed with it. We’ve spent so much that I don’t want to start over. We can’t afford to get it wrong. What do we do? – Submitted by email from R.M.

Solution:

It sounds like you’ve been proactive in your planning, R.M., but things just haven’t come together. It might help to have someone who can see the whole picture guide you through this process. Here’s what you could do now:

Step 1: Take a complete inventory of your current estate, farm operation, and family.

Step 2: Picture what you want to accomplish in each of these areas for the next generation.

Step 3: Map the optimal path to achieve your goals, as if starting from scratch.  

Step 4: Assess your current plan to determine what you can realign with that path.

Sometimes, a complete overhaul is required, and that’s OK. Your plan should keep up with the growth of your operation. In many cases you can build off the existing estate framework. Let’s look at the points you mentioned and see what’s buildable. 

Trusts. You can overlay your updated farm continuation provisions into an existing revocable trust through amendments. An attorney can also restate the provisions of your trust under the same trust name. Irrevocable trusts that remove or freeze asset values from your estate are less flexible.

Entities. You can modify your operating agreements, provided you hold the controlling interests. You can customize a centralized management system and exit strategy specific to your operation and family situation. However, you must define those terms and do the math to ensure they work.  

Life insurance. Upon death, this can significantly leverage today’s cash flow into a tax-free capital infusion. The cash benefits can expand the operation, fund buyouts, or equalize assets among heirs. But when done incorrectly, it can be a disaster. You might be able to roll over your cash value to a better policy, or maybe you start fresh. It’s best to focus on solid insurance carriers that offer guaranteed fixed premiums and death benefits regardless of cash value performance.

Land prices. Land values fluctuate. Should your son’s purchase price fluctuate along with them? If so, be sure the valuation model and funding strategies remain viable. Run the numbers and tweak your plan periodically. Some families set a fixed or maximum price.  

Family. You may not be able to change the minds of the kids who disagree, but you can change your approach. Control the narrative. Share why and how you arrived at your decisions. How can your plan benefit them? Context is key!

I understand your frustrations about the money you’ve sunk into previous plans. If you don’t change anything, that cost becomes a tax. If you learn from it, it becomes a tuition. You’ve learned some powerful lessons. Put your tuition to work for your family and update your plan.

Mark McLaughlin is an associate with Farm Financial Strategies and a co-owner of Farm Estate GPS in Ankeny, Iowa. He grew up on a family farm near Defiance, Iowa, and shares in the fifth generation of ownership. McLaughlin has helped farm families across the Midwest develop farm succession strategies for the last 18 years. Find an online resource to help families understand their options and take control of their farm succession strategies at farmestategps.com.