Estate Planning for Horse Owners

For many horse owners, the property that the family and horses live on is the centerpiece of daily life. Most people remember with vivid clarity the first time they visited their farm and what caught their eye. For some, it was a view of the mountains or that perfect pond, for others it was finally finding a barn that ‘Somebody built with some sense!” The land we and our horses live on is crucial to the continuation of horse sports into the new millennium. However, as we see the baby boom generation retire and pass away, this country will witness the largest transfer of wealth in history. How is this going to affect the horse industry today? Very drastically if the proper measures aren’t taken to plan for the transfer of property and assets to the next generation!

The goal of this article is to provide a brief overview of the basic concerns regarding estate planning. This is the first in a series that will address some of the issues everyone needs to be aware of. Remembering the words of Winston Churchhill, “All men make mistakes, but only wise men learn from their mistakes.” Please realize that you won’t suffers if your estate is poorly planned; it is your spouse, your children, and your grandchildren that will be affected. If you fail to take the proper steps now, a substantial portion of your assets may be lost. Every estate will be disposed of; either by you or the state and federal government. By doing nothing, you are allowing the government to make that decision for you. The following are some of the most common pitfalls of improper estate preparation:

Excessive transfer costs: Simply put, many families may pay significant dollars for the inaction of senior family members. Estate tax exclusion amounts are gradually increasing from $2 million in 2007 to $3.5 million in 2009. In 2010 there is no estate tax, and in 2011 the applicable exclusion amount remains uncertain. Estates that exceed the exclusion amount may be subject to federal tax ranging from 36% to 55% 1. This can leave a large hole in what remains of the estate for heirs. You may be thinking, “My estate couldn’t possibly be over the exclusion amount—$2 million is a lot of money so I shouldn’t worry about estate tax”. Remember the uncertainty surrounding the exclusion amount in 2011, the lower that amount remains, the more revenue the government gains in taxes. If the amount settles back to a $1 million exclusion, it is amazing how property might appreciate, retirement accounts may grow, and many estates could start pushing towards that cap.

Lack of liquidity: insufficient cash to pay administrative costs, taxes, and other settlement expenses. Many people count the value of the farm into the overall estate. While it is often a valuable asset, it is not a liquid one that cash can be quickly pulled from at fair market value. When a loved one passes away, do you want to sell the farm to have adequate cash on hand? No, in times of loss the security of the farm is often the biggest comfort. Many people also underestimate how much it will cost to settle their estates or how quickly the taxes and other expenses must be paid. Generally, federal estate tax must be paid in cash within nine months of death. If a substantial amount of the estate is tied up in illiquid assets (like large amounts of land and horses), a forced sale may occur to acquire the cash within nine months. The sale may be made below market value, which would add further strain on the needs for cash.

Improper disposition of assets: When the wrong asset goes at the wrong time to the wrong person in the wrong manner, the result is often a troubling situation. Make sure beneficiaries are structured properly for various accounts and insurance policies. Is your 18 year-old mature enough to handle large amounts of cash at your death? Also, don’t forget your animals. A lack of preparation can result in improper care or sale of the animals you centered your life around.

Many people mistakenly consider a will to be the end-all-be-all of estate planning. Though it is a good place to start, there are many things to consider. A will is a legal document that describes how you want your property distributed and managed after your death. If you die without a will, the probate court distributes your estate according to state laws. During this often lengthy process, the will may be contested and a judge decides the ultimate distribution, which may differ from your wishes. For many families, the drafting of a trust may be more effective to avoid probate costs than a will. Trusts are more than a means of distributing property at your death; they can help reduce estate taxes, provide liquidity for your heirs, prevent the costs and delays of probate and provide professional management of your assets.

This general information is meant to get you thinking. Have you and your spouse talked about the what-if’s? If you have a horse business, do you want it to continue after you are gone? Is there enough cash on hand to provide for the proper care of your horses if you and/or your spouse aren’t there to feed them tomorrow?

The key principle in estate planning is that you can’t eliminate the big mistakes in your estate plan until you’ve identified them. In the words of Benjamin Franklin, “An investment in knowledge pays the best interest”. Every family and individual, every year, should conduct a ‘financial fire drill.’ Establish an order of priorities and then develop and put into effect plans to make certain that you are on target to meet your financial security needs. Open communication between family members and business partners is critical to effective estate planning. Start talking, get the ball rolling, and don’t leave your estate and your horse’s fate to chance!

Reference: 1 www.irs.gov

Mackenzie Bolin of North Star Resource Group provides exceptional service to those who share enthusiasm for the horse industry. Actively involved in the equine community, she approaches financial services from a common ground with many of her clients.

The foundation of every client relationship is based on the goals & values unique to each individual. Starting at the ground level & developing a sound strategy is integral to future success. Mackenzie offers comprehensive services such as; retirement preparation, college funding options, investment portfolio design, & cash flow analysis.

In addition to personal matters, she also designs small business strategies including; succession programs, risk management & employee benefit packages. Growing up in Seattle, Mackenzie was involved in Pony Club through high school. She attended Oregon State University, graduating magna cum laude with a Bachelor of Science Degree. Mackenzie holds the Series 6 & 63 registrations, as well as being state licensed in Oregon & Washington for Life, Health, & Long Term Care Insurance. An active member of the USEF & the United States Polo Association, she enjoys polo & eventing.