AMES, Iowa — Depending on your family situation and the value of your estate, forming a trust can be an important addition to your farm transition plan.
A will gives basic assurance of where farm and personal assets will go at death, but a trust can provide more detail and instruction, with the flexibility to transition your farm the way you want it to go.
In an article written for the December Ag Decision Maker, two experts with Iowa State University Extension and Outreach give an overview of what a trust is, the different kinds of trusts, who they benefit and what a person should consider before forming a trust.
“The trust is a very useful and flexible tool for estate planning, yet it is probably the most underused estate management technique,” according to Kelvin Leibold and Melissa O’Rourke, farm management specialists with Iowa State University Extension and Outreach.
A trust is an artificial entity, comparable to a corporation, created by a document or instrument that guides the handling of the trust assets.
One of the biggest factors in determining whether a trust is necessary is the family situation, according to O’Rourke. More complicated situations, involving multiple generations and rights of ownership and management, may make a trust an ideal choice.
The article, called “Trusts as an Estate Planning Tool,” guides the reader through the basics of how to create a trust, how one is funded, the costs to maintain a trust and the different parties that must be involved to form and carry out a trust.
O’Rourke and Leibold discuss common mistakes people make with trusts, like forgetting to change how assets are titled, so that they go into the trust, and making sure the parties understand the different types of tax liabilities based on the type of trust that is chosen.
The two main types of trusts are living and testamentary trusts. A living trust is established by a living person, while a testamentary trust is established in a will and comes into being at the time of death or under certain circumstances.
Living trusts are usually revocable or irrevocable, and each carries different stipulations on what the grantor can and cannot control, and different types of tax liability.
“A trust is basically creating another entity or a bucket where you put the assets, and then writing the rule book of what should happen with those assets,” said Leibold.
Done correctly, he said a trust can help keep a family member in farming, while allowing the other family members to receive ownership in the farm, land, money or whatever assets the grantor chooses.
Because farm operations have so many moving parts – and expenses – a trust can help make the transition as seamless as possible, while accomplishing the goals of the grantor.
Leibold and O’Rourke both recommend being transparent with family members and informing each person where they stand in regard to the estate. Sharing documents and holding family meetings can help keep everyone on the same page.
“As far as I’m concerned, everyone should have a copy of these documents – be it a will, power of attorney or a trust,” said O’Rourke. “Give a copy to everyone in the family, so that everyone knows what is going on.”
— Melissa O’Rourke and Kelvin Leibold, Iowa State University Extension and Outreach
For more news from Iowa, click here.