Paying taxes includes estate planning

By Susann Mikkleson

Along with the promise of Spring, this time of year brings us tax season! Though it isn’t the same level or type of excitement as the “Holiday Season” that is usually referred to by the title phrase – anxiety might be a better term – all (or most) of us must endure it. As you prepare for the inevitable this year, keep in mind that the manner in which you prepare your estate plan may have a positive impact on your tax situation. It is too late for your 2006 taxes, but now is the time to consider your plans for next year and beyond.

We have been throwing around this term “estate planning” fairly often lately, and largely for self-serving reasons: we want you to remember the Rocky Mountain Farmers Union Educational and Charitable Foundation in your plans. That is important in order for us to ensure the future of the organization. Today, however, I am going to focus more on the estate plan itself.

What, exactly, is estate planning and why is it so important? Depending on who you ask, you may get various definitions of estate planning and its value. The title – estate – always brings to mind for me the big white house on the hill, with the acres of grassy land fenced in with rot-iron fencing and security cameras – you know, like you see in the movies (not a lifestyle most of us are intimately familiar with in agriculture, I’m sorry to say). Actually, everyone has an estate. If you own anything – a car, a farm animal, equipment, a life insurance policy, and certainly a home – you have an estate. An estate, for the purposes of estate planning, is the total value of all of an individual’s assets, including property, assets and cash held both solely and jointly (such as homes and property, bank accounts and investments, vehicles and equipment, and livestock), life insurance, retirement accounts, mutual funds and other assets (jewelry, guns and other items of value are also included). What happens to your estate upon death or transfer is up to you.

Guess what else – everyone has an estate plan too, and it may NOT be what you think. Whether you have developed an estate plan expressing your wishes or not, a plan does exist for dispersing your assets when you die. Upon your death, your estate will go through a probate process by which the state decides, based on state laws at the time, how your assets are distributed. If you do not have a documented plan of any sort, you obviously have no say whatsoever in that disbursement – not surprising.

What may surprise you is that, even if you do have your wishes documented, they may not be carried out. If you do not have a comprehensive understanding of your estate and how your assets are defined in accordance with state laws, you – or rather, your heirs – may be in for a not-so-pleasant surprise in regard to the equity of distribution upon your departure. For example, you might state in your will that you want your assets divided equally among your heirs – let’s say a surviving spouse and three children. However, if you hold property jointly with your spouse or one of your children, that property will not be included in the estate divided equally through your will; rather, it will transfer in full to the joint owner. This can lead to discontent and even feuding among your heirs as they battle out what is “fair and equitable.” At a minimum, it creates a complex and costly situation to resolve. I am only scratching the surface here on the complexity of issues to be addressed, even if you don’t feel you “have that much of an estate.”

Regardless of the size and scope of your estate, comprehensive estate planning is essential, as is including more than one professional advisor (such as an attorney, tax accountant, estate planning professional or other advisor) in the process. This is true not only because of the circumstances mentioned above, but because a complete understanding of your assets and how they relate to estate planning laws and opportunities can be helpful to you now, and in the later years of your life – not just to your heirs upon your death. Assessing and reviewing your estate plan regularly can:

• Save you money in taxes and other related fees;
• Help you stay informed about state tax laws and changes as they occur;
• Assist in planning for current and future needs, and address changing needs as they arise; and
• Ensure that your heirs are not left with a mess upon your death.

To best understand your estate, you should involve any financial advisor(s), attorney(s), charitable estate planning professionals, tax and business accountants or advisors, and others who help you manage one or more asset. Various advisors will approach your estate from their particular point of reference – not necessarily a comprehensive outlook. This doesn’t have to cost you a fortune. Do your research ahead of time. The Wills, Trusts and Your Estate book being offered by the RMFU Foundation and FUSA is a good start! There is a lot of information available online, and often advisors such as those mentioned above will provide a free consultation upon request. In the end, it will be worth your while to spend the time and dollars putting your estate in order. And, by starting now, you might see the return on your investment as early as next year at tax time!

If you are interested in learning more about how to include The Rocky Mountain Farmers Union Educational and Charitable Foundation in your estate plans, please contact Susann Mikkelson at (303) 283-3541 or susann.mikkelson@rmfu.org. All discussion in this regard are held in strict confidence and no information will ever be publicly released without your expressed consent.