Estate planning part 1: What every farm family needs to know

Estate planning can be easy to put off. But when there is no plan in place, state law may end up deciding who handles your affairs, who receives your property, and what happens to the farm.

In this episode of Straight Talk with NDFB, the Harvesting Legal Knowledge series continues with NDFB CEO Jeffrey Missling and Ohnstad Twichell attorneys Tiffany Findlay and Jenna McPherson.

The conversation breaks down the basics of estate planning, including wills, powers of attorney, and healthcare directives. The attorneys explain why these documents matter, what can happen when someone dies without them, and why a spouse may not automatically have the legal authority to make financial or medical decisions.

They also discuss how farmland and other real estate can be transferred, the differences between life estate deeds and transfer-on-death deeds, and when trusts, gifting, estate taxes, or probate may come into play.

Watch the entire episode on our Harvesting Legal Knowledge page here.

Contact our host Emmery Mehlhoff at emmery@ndfb.org

Disclaimer: The statements made and information provided in this podcast are for educational and informational purposes only. The statements do not constitute legal advice, nor are they intended to create an attorney-client relationship. Every situation is unique, so you should not rely on any statements in this podcast as a substitute for personalized legal counsel. Before taking action or making any decisions that may affect your legal rights and obligations, you should consult with an attorney licensed in your jurisdiction.

Transcript

[Straight Talk theme]

[00:10] Emmery: Do you have an estate plan or are you leaving those decisions up to the law? Welcome to Straight Talk with NDFB. I am your host, Emmery Mehlhoff. Farming and ranching are tough businesses and legal issues can just complicate things. That's why this season features Harvesting Legal Knowledge, a conversation between NDFB and the Ohnstad Twichell law firm. NDFB CEO Jeff Missling and the attorneys at Ohnstad Twichell break down key legal topics impacting farmers, ranchers and ag businesses every day. 

In the first of this two part series on estate planning, we start with the basics. Who needs an estate plan? What should you have in place and what happens if you die without a plan? We also discuss powers of attorney, health care directives and much more. Estate planning is not only about what happens after you die, it is also about making sure you have someone to manage your financial, business and health care decisions if you are unable to make them yourself. As always, if you have a specific legal question, be sure to consult an attorney who can address your situation. Let's get into part one.

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[01:25] Jeff: Welcome to another Harvesting Legal Knowledge. This is a collaboration between NDFB and Ohnstad Twichell law firm. And with us we have Tiffany Findlay and Jenna McPherson with Ohnstad Twichell. Thank you for being here, ladies. We're going to talk about, I guess estate planning is the topic at hand and so estate planning is important for everyone to avoid tax implications, avoid messy situations and overall ensure the farm is passed down to the next generation of farmers or ranchers in our case. And so we've got a series of questions here. First off, to start off, I guess, who needs an estate plan?

[02:01] Tiffany: I think it's important to know that everyone can use an estate plan. When you're thinking about young families, farmers who are just starting off in the industry in particular and of course, you know, when you're nearing retirement there there's so many situations that we can avoid that could potentially get messy or situation that you may not want to happen that we can plan for in advance and can continue planning for as we go through life. So I think that everyone could use an estate plan in some form or another.

[02:34] Jeff: Let's see, what documents does a, does a person really need?

[02:37] Jenna: I think for the foundational documents, certainly a will, power of attorney and healthcare directive are the three main documents every person really needs for their estate plan. The will governing what happens to your assets when you're, when you're gone. Power of attorney governing who can make business and financial decisions on your behalf when you can't make those decisions and healthcare directive to make healthcare decisions for you when you can't make those for yourself.

[03:01] Jeff: Very good. What happens when there is no estate plan?

[03:05] Tiffany: When there's no estate plan, what we see happen is that we have to rely on North Dakota statute to govern who is responsible for administering the estate or who actually receives the distribution of your property. Who's paying for your debts. Granted that North Dakota statutes do take into account what the average family may want, but that's now more than ever, not necessarily what a typical person may want for where their estate should go after they pass away.

[03:37] Jenna: Yep. And statute will also govern who gets priority to serve as personal representative. And again, that might work out for some families, but for others that's not really necessarily would have been their intention had they documented it.

[03:49] Jeff: Sure. Isn't a spouse already a person's agent for financial and medical powers under law?

[03:55] Tiffany: So we find that more and more small town banks or entities may allow a spouse to go in and act on their other spouse's behalf. But underneath the law, you do need to actually appoint an agent in order to for that power to be effectuated. So during your lifetime, it's important to make sure that you do have a power of attorney document to appoint an agent to manage all of those financial matters. Who can take care of business when you're on vacation, much less alone when you may be incapacitated. Same thing for your healthcare decisions. You know, having that healthcare directive and appointing an agent and also letting them know about what your wishes are for medical care is pretty important.

[04:38] Jeff: Just a little more explanation I guess of explaining wills, powers... power of attorneys. Is there any more that you want to contribute to that? I guess, Jenna, at all?

[04:47] Jenna: I don't think so. I think a will can be as simple or as complicated as you want it to be. There really... there's not really a one size fits all. And so that's why it's important to visit with an attorney to go over your certain situation. Your financial situation and your familial situations are all really relevant to drafting a well thought out estate plan.

[05:06] Jeff: Sure. Switch things up a little bit here. Talk about some of the impacts of real estate ownership on estate planning. So how does real property ownership affect your estate plan?

[05:18] Tiffany: Well, as we talked about before in another webinar, there are multiple different ways that you can own real property, in particular with another person. You know, we have the joint tenancy or tenants in common types of ownerships where you either own an undivided 1/2 interest with the other person or you own an undivided interest where as soon as you pass away, your interest automatically does go to the other joint owners names. 

We also of course have the life estate deeds where you can grant the remainder interest to a person after you pass away. Or a transfer on death deed as well, where we have some of those same considerations at play. 

There's a lot of different ways that real estate ownership can affect how we go about with the rest of your estate plan and also can play into what we see in the future of particularly the real property and how that's going to be transferred through the generations.

[06:21] Jeff: Does transferring property while retaining a life estate provide adequate asset protection when beginning to transfer real estate to the next generation?

[06:30] Jenna: Yeah, so the life estate deed is a term that Tiffany referred to earlier as an option for owning real estate. And so what that does is you're conveying real estate to a child typically during your lifetime and then the, you would retain the rights to the income for your lifetime. Um, and then at death that that property completely transfers to the, to the remainder interest holder. Do we want to get into Medicaid? Talk about the five year look back in North Dakota? 

[06:54] Tiffany: Might as well, yeah.

[06:56] Jenna: Okay. So in North Dakota a lot of folks are interested in doing medical assistance planning and so they will utilize a life estate deed as a way to protect that asset, typically farmland, sometimes residential properties. And they try to do that at least five years before they think they're going to enter the nursing home to protect that asset. There's a five year look back period for entering the, you know, for a five year look back period for qualifying Medicaid for Medicaid when you apply for Medicaid.

[07:26] Jeff: Okay, yep.

[07:27] Tiffany: Yes. And I think another important consideration with a life estate deed too is that there are considerations compared to say a transfer on death deed to take into account where as soon as you sign that life estate deed, your children or whoever you granted that remainder interest to, they have a present type of interest. You know, if they have creditors or if they pass away, that remainder interest can be subject to those types of things.

[07:54] Jenna: Or if they get divorced like they, they're co owning with their kids during their lifetime, which is, can be a huge negative for some of our clients. That's just not something they're interested in doing.

[08:03] Tiffany: There are a lot of pros and cons with using the life estate deed, which is why a lot of people are, if they're not sure, maybe will use the transfer on death deed, so that they can still go on and name Very easily and simply the person they want that property to pass down to without some of those consequences. But then we don't have any protections like the five year look back protection against Medicaid asset inclusion.

[08:29] Jeff: So is it fair to say, like the earlier the better when you're, you're doing some of this planning that's kind of typical for a lot of the answers I think of these topics we're talking about. But better to plan ahead of time rather than try to be reactionary after the fact?

[08:45] Jenna: Certainly, yeah, certainly, certainly on a case by case basis. Some folks aren't in a position to make those decisions either. And we don't want you to make a decision you'll regret later either. But I certainly think being informed and discussing these earlier the better.

[09:00] Jeff: Excellent. Again, shifting things a little bit here. Talking about gift tax and annual exclusion. When is a gift tax an issue?

[09:10] Tiffany: So gift tax is an issue when you happen to gift property or assets or say monetary values to another person. It doesn't need to be in your family. Right now each person has a $19,000 annual gift tax exclusion amount where you are able, each person is able to gift $19,000 to another without needing to worry about gift taxes. And we of course also do have in here the spousal deduction where you can of course gift as much or as little to your spouse as you want without any considerations when it comes to gift tax.

[09:53] Jeff: Very good. When do you need to file a gift tax return?

[09:57] Jenna: Gift tax return gets filed when you go over your annual exclusion amount. So like Tiffany said, right now we're at 19,000 per year per person. If you go beyond that, you'll file a gift tax return. Um, and then that whatever amount over you are of the annual exclusion amount, that will just deduct from your lifetime exclusion amount, which right now is 13.99 million per person. So that'll deduct. But there's no, no taxes owed necessarily. It's just reduced from that amount.

[10:23] Jeff: Yeah, they ratcheted that amount up also over the years. I feel like.

[10:27] Tiffany: Yeah, yeah, they usually do account for inflation every year. So right now that number is 19,000. But yes, there is a good possibility that next year and continuing on those amounts will go up.

[10:39] Jeff: And the 19,000, that's an aggregate total? So you can't just gift 19. 19, 19?

[10:47] Tiffany: Opposite, actually. So I could gift if I really wanted to. 19,000 to you. 19,000 you can do. I'm sure you would like that. So it's not... It's per person to the receivee is the $19,000 limitation. So it does not need to be $19,000 per year per giftor. Which is also another reason why, you know, especially when we're looking at more and more uses, it's life, estate deeds or other types of transitions to reduce your net worth. The gift tax exemption is used more and more because that is a very easy and good way to start, exactly. It's a freebie to lower your net worth without any type of consequence on either the front or the back end.

[11:38] Jeff: Awesome. Do you, do you need to pay anything when filing a gift tax return? Is there a cost associated with the.

[11:44] Tiffany: No. So the only cost you'll pay on that is when you actually pay the filing fee or the paying the accountant per se to actually file that gift tax return. There is actually no tax due to the IRS when you file that turn. But like what Jenna said, and what we'll discuss a little bit later on down the road is it may have some consequences when you do pass away.

[12:07] Jeff: Okay. So, estate tax exemptions. So what does it mean to have an estate tax exemption?

[12:16] Jenna: So right now I'll give an example. Everyone has a federal estate tax exemption, a lifetime exemption amount where whatever they own at death is exempt from tax up to a certain amount. And like I said earlier, that amount right now in 2025 is 13.99 million. And so anything over that gets taxed at the federal tax rate or the federal estate tax rate. Excuse me. And so that's the exemption amount for each person.

[12:42] Tiffany: And I can point out too, so not only do we have to sometimes worry about a federal estate tax exemption, but the states do have the option to also have federal estate tax due on your death. In North Dakota, we do not have any estate tax. However, on the Minnesota side, each person does have a $3 million worth exemption. So if you own any real property over in Minnesota, that may be something that you want to take into account when you're planning.

[13:10] Jeff: Okay, good to know when we operate on the border here. So exactly. And then this question, I don't know, you maybe covered this, but when is your estate tax amount calculated?

[13:23] Jenna: Your estate tax, So your net worth essentially at your passing after you're due to that. Exactly.

[13:27] Jeff: Okay.

[13:28] Tiffany: And it may be good to note there that when we are calculating how much tax we can count, the fact that there is also a spousal deduction when we're considering estate tax as well. So when you are passing all of your property to your spouse on your death, we aren't looking at any federal estate taxes due.

[13:48] Jeff: Okay.

[13:49] Jenna: And I think maybe just to piggyback off of that, so if everything passes the spouse, you can also pass over the exemption amount. That 13.99 that you hold. Can, can. Could potentially all be passed over to your spouse so that when they die, they get the 13.99 million. And of course we wouldn't know exactly what their exemption amount would be, but when they pass, they get to couple those together. So that can offer a lot of safe harbor for a lot of folks to avoid estate tax. And that's, that's kind of a really big service that our firm offers for clients.

[14:17] Jeff: Okay.

[14:18] Tiffany: It's a really nice inclusion. So it's called portability. And particularly this year when we were looking at the estate tax exemption sunsetting and, and almost being cut in half into the next year, a lot of the clients where we had say spouses pass away this year, we wanted to make sure that we did file and port over that estate exemption so that we preserved that higher dollar value just in case something were to happen down the road and they did have a lower exemption rate.

[14:46] Jeff: You think there's a threat to that? Obviously, who knows with politics, right? And given it like an administration change or people being elected senators, congressmen, whatever. But do you feel like there's a real potential threat to that amount being lowered in coming years or have they kind of continued to ratchet it up like you said, based on inflation? And is that just kind of political talk that you know it's suddenly going to be cut in half or something?

[15:11] Tiffany: Well, there was an actual law in effect where it was supposed to sunset January 1, 2026. However, the legislature has actually now gone on start to raise that exemption amount up again. So like Jenna noted, next year it will be 15 million and it will supposedly go up from there. Of course, we never know what the legislature is going to so. But you know, like I said, our crystal ball isn't really clear.

[15:38] Jenna: So we certainly something that we have the term, you know, with our phrase rather of it's the political football. It's kind of the thing that can be tossed around and certainly a way to kind of for the government to tax folks as at death. So we'll see.

[15:51] Jeff: We have a lot of political footballs I feel like right now that are up in the air and, and things being used for sure. Thank you so much for your time, ladies.

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[16:02] Emmery: You've been listening to Straight Talk with NDFB our Harvesting Legal Knowledge season. To watch the entire interview with Jeff and Ohnstad Twichell, please click the link below. If you have any questions, contact us at emmery@ndfb.org.

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