What is your word worth in estate planning?

Problem: The stakes are too high for "Trust me."

My parents, especially my dad, always tell me that their plan will “take care of me,” but I have no idea what they mean by that. Unfortunately, in the past I have had other people say, “Trust me,” and then they did not keep their word and it cost me. The stakes are high and I think it would be prudent for me to see the business plan. I want to believe my parents, but it’s difficult when I have no proof. – Submitted by email from R.W.

• READ MORE: The value of creating a plan b

Solution

In estate planning we spend a lot of time talking about valuing farm assets for both estate tax purposes and transition purposes. There are many questions that can come up when valuing actual assets, but one thing we don’t talk much about is how to value someone’s word. In a best-case scenario, all their words are documented, preferably in a bilateral agreement so one party cannot change without the other party’s permission.

R.W., you are in a tough spot. Your parents are asking you to place a premium value on their word, to the point of you staking your future livelihood and maybe even your children’s livelihood on their word.

What is their word worth when they say our plan “will take care of you?” That opens a huge range of interpretation! Honestly, that could range from being a train wreck for you all the way to the other extreme of being a terrible outcome for your siblings.

I have had bad experiences with taking people’s word. I conclude that even though we want to trust people, some people are simply not true to their word. Some people have no conscience, but others do it without ill intent. Your parents probably mean well, but it’s hard to take anyone’s word without seeing the documents to back it up. Obviously, you cannot make them show you anything, but what has been your approach up to this point?

Here are a few suggestions:

1. Confirm their goals and express yours.

Hopefully you can agree on a goal of avoiding tension with siblings upon the death of your parents. Seeing documents will confirm their words.

2. Reduce tension.

Tell them you want to enjoy working with them until they pass away but not knowing how things will be distributed creates unnecessary tension.

3. Note changing values.

Remind them of escalating asset values, and ask for hints as to how they have addressed that in their planning so you know what to plan for or expect. Very few farm families have realistic plans and tools in place to address inflation, especially recently. 

4. Conduct a Q&A.

Gently quiz them on how values will be determined, who gets which land parcels, how rental options will be determined, or if there are buyout options. Uncertain answers now will almost certainly lead to problems later. 

5. Offer a sample problem.

Show them a cash flow as an example and demonstrate how devastating buyouts could be without clear formulas and strategies incorporated into their planning.

6. Beg if you have to.

Pleading may sound desperate, but this is a big deal that can cause all kinds of unnecessary mental stress and strained relationships.

7. Save your spouse stress.

Remind them that when the first one of them passes away, a poor plan can become a miserable plan for the surviving spouse to deal with. 

How much is their word worth? Can you trust it? I don’t know. Perhaps it should be more about transparency than trust. How many other multi-million-dollar businesses would get transferred based on the words “trust me?”

Myron Friesen

Myron Friesen is co-owner of Farm Financial Strategies in Osage, Iowa. Over the past 22 years, he has worked exclusively with farm families across the Midwest to develop farm transition strategies. Friesen grew up on a Mountain Lake, Minnesota, farm. He owns and operates a 1,7000-acre crop and livestock farm with his wife and four children. farmestate.com