Ask Tim: The Art of an Inheritance

It’s been a busy week here at Kingsview. Tax season is ramping up. People have questions. There’s a lot going on, but I couldn’t be happier to help. This is my job, after all: Answering questions… just like these two I received this week.

This week, we’re covering one of my favorite topics: Inheritance. Let’s get rolling.

I inherited my granddad’s ranch. Do I leave the oil rig and run it full time?

Dear Tim, 

My grandfather left me his ranch, and I am still trying to get my arms around the whole thing. I am 50, I work on an oil rig, and I have spent my life around hard work, yet this is a different kind of responsibility because it comes with land, income, equipment, and a family story attached to it.

From what I can tell, the ranch throws off a lot more cash than my job does, though I also realize ranch income can swing around with weather, cattle prices, feed costs, and repairs. Part of me feels like I would be crazy to walk away from a steady paycheck, and part of me feels like I would be crazy to ignore a property that could set up my family for decades.

Dear Dirty Hands,

My first reaction: this deserves a real business decision, rather than a sentimental one. If the ranch truly produces materially more income than the rig, and if the cash flow is durable after taxes, upkeep, labor, insurance, and reserve needs, then a move could make a great deal of sense.

A few variables can swing this hard. The first is the ranch’s true earnings after real expenses, rather than what hits the checking account in a good month. The second is your tax setup, because inherited property generally receives a basis tied to fair market value at death, which can matter later for depreciation, a sale, or future gain. The third is whether you would run it as a sole proprietorship, LLC, partnership, or through a broader family structure. Owners of many pass-through businesses, including farming operations reported on Schedule F, may also qualify for a deduction of up to 20% of qualified business income, depending on the facts.

Here is a simple way I would frame it. Say the oil rig job pays $120,000. Say the ranch brings in $420,000 of gross revenue and, after feed, labor, fuel, repairs, taxes, insurance, and other operating costs, leaves $210,000 of net income. Even after setting aside, say, $35,000 for a repair reserve and extra working capital, you are still looking at materially higher earning power. If part of that income also qualifies for the QBI deduction, the after-tax gap can widen further.

This week, I would gather five things: a date-of-death appraisal, the past three years of ranch financials, a list of equipment and major assets, an insurance review, and a meeting with a CPA plus an estate attorney. Then I would run a twelve-month side-by-side: keep the rig, leave the rig, or phase out of the rig over a year while the ranch proves itself. A phased exit often gives people clearer data and better sleep.

One thing people miss here is basis. Families often focus on acreage and income, while skipping the appraisal work that becomes extremely important later. The IRS generally treats inherited property basis as fair market value at death, and that number can shape future capital gain, depreciation, and planning flexibility.

Where I land: if the ranch has strong books, enough liquidity, and a setup that fits your life, this could be a rare chance to trade a paycheck for an asset with real staying power. I would move carefully, though I would absolutely take the ranch seriously.

My advisor is suggesting a “trust within a trust” and a third party moving money into the main trust. I want protection for my kids if they marry. How do I make sure this is clean?

Dear Tim,

I am 53, I have been divorced for years, and I have two kids in their twenties. I am comfortable financially, and I am fine spending money on good planning. I am also realistic about what happens when life partners enter the picture. One of my kids is engaged, and I like the person, yet I have seen how fast things can change when finances become part of the relationship.

I was told to consider a trust structure that sounds layered. The explanation was that money could sit in a separate trust and then be moved into the main trust under direction, and that distributions to my kids would be controlled by someone else. The goal is to keep assets from being pulled into a divorce or pressured out of my kids. I like the goal. I am uneasy about the mechanics. I do not want a structure that depends on informal instructions or one person’s ongoing influence.

- Careful With Boundaries

Dear Careful With Boundaries,

Your concern is the right concern. The goal is protection through governance, and governance has to be written clearly so it holds up even if relationships change.

Before I answer, I should mention how important it is to have a professional team you trust to design and execute your estate plan. This typically includes a knowledgeable attorney, CPA, and wealth manager. We’ve collaborated on several cases like these.

The term “trust within a trust” can describe a few designs. Often it is a primary trust that creates subtrusts for each child, where each child is a beneficiary of their subtrust and does not receive outright ownership. That matters because when a beneficiary does not directly control the assets, it is harder for a spouse to argue the assets are marital property. The protection usually comes from trustee discretion, spendthrift language, and how distributions are executed.

Where I would slow down is the part about an advisor directing a third party to move money. Advisors can coordinate and communicate, yet the authority to move assets and approve distributions should come from the trust document and fiduciary roles, not informal direction. A cleaner design is often: one trust, two subtrusts, an independent trustee or distribution trustee who controls when money goes out, and an investment manager who handles investments under a written policy. If additional oversight is needed, there are ways to build that in without relying on vague control.

Here is a numbers example. Say you want to allocate $3,000,000 total, $1,500,000 per child. The trust creates two subtrusts and says distributions can be made for health, education, maintenance, and support, with more flexibility after a certain age. Instead of handing a child $300,000 for a down payment, the trustee pays the closing costs directly to the title company and keeps the remaining assets inside the trust. If a divorce occurs, the trust assets generally remain in the trust, and only what was distributed and commingled becomes the real exposure point.

What you can do this week: ask for a one-page governance chart. It should list each role and what each role can do: trustee, distribution trustee, investment manager, and any oversight role. Then ask one direct question: who has legal authority to move money between trusts, and under what written standard? If the answer relies on informal direction, simplify. Finally, make sure the trustee selection matches your intent. The right trustee tends to be consistent, calm, and willing to say yes slowly.

One thing people miss is that the biggest risk often comes from sloppy distributions, vague estate plan documents, and having a less than qualified professional team to help your heirs pick up the pieces after you’re gone - not from the existence of a spouse. Clean distribution mechanics, clear roles, and ongoing execution are what create durability.