What Happens to Your Farm Estate Plan When the First Spouse Dies?

I often tell clients after we finish signing their estate plan that if something happens to one spouse, I want the surviving spouse to call me within about a month.

There is a reason for that.

We can spend years planning how to protect the farm and eventually pass it to the next generation. But for most married couples, both spouses are not going to die at the same time. When the first spouse dies, there may be important provisions in the estate plan that need to be put to work.

For Minnesota farm families, one of the biggest reasons to pay attention after the first death is estate tax planning.

Minnesota Estate Tax and the First Spouse’s Exemption

Minnesota currently has a $3 million individual estate tax exemption. A married couple therefore has two individual exemptions, potentially allowing them to protect a combined $6 million.

The important part is that Minnesota does not have portability between spouses.

If the first spouse dies and everything simply passes to the surviving spouse, the first spouse’s unused Minnesota estate tax exemption does not automatically transfer to the survivor. If the estate plan does not make use of that exemption, it can be lost.

That can become particularly important for farm families because farmland, equipment, business interests, and other assets can push the value of an estate higher than people realize.

Using a Credit Shelter Trust

One tool we may build into an estate plan is a credit shelter trust.

Think of it as a bucket we have already built into the estate plan. When the first spouse dies, we may need to put assets into that bucket so we can take advantage of the deceased spouse’s available estate tax exemption.

For example, suppose a husband dies owning $3 million of farmland through his trust. Rather than simply transferring all of that property outright to his wife, the estate plan may allow those assets to remain in a credit shelter trust.

The surviving wife may be able to serve as trustee, receive income from the trust, control the assets, and potentially access principal when necessary. But for estate tax purposes, she does not personally own the assets held in that portion of the trust.

That distinction can be extremely valuable.

When the surviving spouse eventually dies, the assets held in the properly structured credit shelter trust generally are not included in the surviving spouse’s taxable estate. The first spouse’s estate tax exemption was used to protect those assets.

Funding Your Estate Plan Matters

None of this works very well if the estate plan was never properly funded.

I sometimes compare a trust to a bucket. We can create the bucket, but we still have to put something in it.

If farmland or other important assets were supposed to be held in a trust but never made it there, some of the planning tools we intended to use may not work as expected when someone dies.

That is one reason I continually remind clients that signing the estate plan is not the end of the process. Your plan needs to remain properly funded and updated as your assets and family circumstances change.

There Is Work to Do After the First Death

Calling your estate planning attorney may not be at the top of your mind after losing your spouse. Understandably, there are many other things happening during that time.

But there may also be deadlines, decisions, and planning opportunities that should not be overlooked.

If your estate plan includes a credit shelter trust, disclaimer provisions, or other estate tax planning strategies, we need to determine whether those tools should be used. Waiting too long or simply transferring everything to the surviving spouse could mean losing opportunities the estate plan was specifically designed to preserve.

For farm families, that can have significant consequences when millions of dollars of farmland or other appreciating assets are involved.

Your Estate Plan Needs to Work When You Need It

The goal of estate planning is not simply to sign a stack of documents. It is to have a plan that actually works when your family needs it.

Keep your estate plan updated. Make sure it is properly funded. And when the first spouse dies, contact your estate planning attorney so you can determine what needs to happen next.

The tools may already be in your toolbox. You just need to make sure you use them.

Take the Next Step

If you’re ready to start being proactive about your estate plan and want guidance tailored to your family, assets, and goals, contact Wagner Oehler, Ltd. to get started.

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