Part 2: The Legal Side of Farm Transition Planning - Planning for the Future of Your Farm
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Planning for the Future of Your Farm
Part 2:
Peggy Kirk Hall
The Legal Side of Assoc. Professor, Agricultural Law
hall.673@osu.edu
Farm Transition
Planning OSU Extension Agricultural &
Resource Law Program
Attorneys
Directives
Non-probate transfers
Today’s topics Wills and trusts
Materials Slides, worksheets, bulletins online
at go.osu.edu/planforfuture
Next week Strategies
Business entities
Guest attorney Robert Moore
Powers of Advance
Attorney Directives
What’s on the
legal side of
farm transition Transfers
on Death
Wills
planning?
Business
Trusts Entities
Good beginnings
?
Factors to consider when selecting an attorney
for your farm transition plan
Farm transition Individual
Comfort level Cost
competence focus
• Estate and • Tailoring tools • Location • Total cost
business to you • Mode of • Payment
knowledge • Explaining the working options
• Knowledge of plan to you • Personality
agricultural • Referrals
operations
Critical questions 1. Is the attorney you have now a good fit? 2. Which factors matter most to you? 3. Who can provide trusty referrals? 4. Who do you want to “interview”? 5. What are your interview reactions?
What will
your attorney
be thinking?
• Is there a federal estate tax issue?
• What’s the financial situation for the
operation?
• What assets are farm versus non-farm?
• What special needs must be addressed?
• What pieces are already in place?
• What needs to be changed?
And more …..
What does your attorney need from you?
• Balance sheet showing personal and
farm assets and debts.
• List of how assets and accounts are
titled, including beneficiary designations.
• List of heirs, their relationships to you,
and their birthdays and addresses.
• Business entity(s) you own or have an
ownership interest in.
• Existing estate planning documents such
as wills, powers of attorney, etc.
• List of advisors: accountant, insurance,
financial planner, other attorney.
Year Exemption
The role of the federal 2017 $5,490,000
Back to
here now?
estate tax exemption 2018 $11,180,000
Tax Cuts
and Jobs Act
2019 $11,400,000 of 2017
• Net worth is used to assess estate
tax liability. 2020 $11,580,000
• Portability rule allows to use up 2021 $11,700,000
couple’s combined exemption. 2022
• But exemption is subject to 2023 continued increases,
with adjustments
changes by Congress. 2024 for inflation
• Plan as if it’s at the lowest possible 2025
exemption level.
Back to
• Strategies to reduce the net $5,000,000
2026
worth of the estate… adjusted for inflationGetting more personal
with the information you share
Details of farming operation Details about the family
• Do you have any business entities in • Special needs like disabilities,
place? financial problems, difficult
spouse.
• Who owns interests in your entity?
• Is divorce or remarriage a
• Who makes decisions? concern?
• Who’s provided sweat equity? • Family dynamics—who doesn’t
• Any problems getting along? get along?
• Who else wants in, or do you want • Who wants to live on or return to
to bring in? the farm?The right attorney with the right
information can develop the right plan
• Help farming heirs get into the operation.
• Help farming heirs afford to lease or buy out non-farm
heirs in the future.
• Maintain a viable land base for farming.
• Provide a revenue stream for non-farming heirs.
• Restrict land ownership to family members.
• Protect the land as agricultural land.
• Deal with the equitable v. equal dilemma.
• Prevent family drama and ruined relationships.
12Which pieces should be in your plan?
Which pieces do you have? (survey question) • Will • Power of Attorney • Health Care Power of Attorney • Living Will • Trust • Gifting plan • LLC, partnership or corporation • LLC Operating Agreement • Buy-Sell Agreement with heir(s) • Leases with heirs
Some basic parts Tools to prevent disruption: • Financial Power of Attorney • Healthcare Power of Attorney • Advance Directives
Financial Power of Attorney
Non-Durable Durable
• General v.
Limited
Non-Springing Takes effect once signed Takes effect once signed
• Durable v. Terminates upon Terminates upon
Springing revocation or principal’s revocation or the
incapacitation principal’s death
Springing Takes effect once the Takes effect once the
trigger occurs trigger occurs
Terminates upon Terminates upon
revocation or the revocation or the
principal’s principal’s death
incapacitationHealthcare Power of Attorney Similar to Financial Power of Attorney • But for medical decisions Advance Directives • Living Will • Donor Registry • Funeral Arrangements
Tools for transferring assets
Transferring assets at death
TOD, POD,
Assets survivorship,
insurance,
business entity
Will
Trust
Probate
Court BeneficiariesThe Will:
your instructions to the court
• Appointment of personal Types
representative
• Distribution of property • Simple or
• Special rules
“sweetheart”
• Guardianship for children
• Pour-over
• Complex
Not just for the older
generation!A simple plan for transferring assets
TOD, POD,
Assets survivorship,
business entity,
insurance,
assignments
Will
Probate
Beneficiaries
CourtNon-probate transfers of assets
• Avoiding probate can save Example of county rates:
time and money. For personal property including
• County court sets maximum proceeds of real estate sold under
power of sale:
amounts attorneys can charge
6% on the first $3,000
for probate. 4% between $3,001 and $15,000
• Charges only apply to assets that 2% on the balance
go through probate.
For real property not sold:
• Estate attorneys are not required
2% on the first $10,000
to charge this rate, it’s negotiable.
1% on the balance
• Client can ask for an hourly fee
instead of percentage fee. For all other property: 2%Joint survivorship deed
• Automatically transfers real property
to surviving co-owners upon death,
doesn’t go through probate.
• Typically used with spouses but can
be used by any joint owners.
• Deed must include language to the
effect of “for their joint lives,
remainder to the survivor of them.”Transfer on Death “TOD” designations
Assets transferable by TOD • Designations that transfer
property upon death
Real estate without going through probate.
Motor vehicles • Owner must follow legal
Boats, campers, recreational procedure to establish the
vehicles, mobile homes designation.
Stocks and bonds • Beneficiary must follow steps
NOT equipment—not titled! after death to finalize the
transfer.Life insurance and
Payable on Death accounts
• Proceeds pass directly to named
beneficiary.
• But benefits are included in policy
owner’s estate, regardless of who
pays premium or is the beneficiary.
A good tool for
• Ownership of a policy can be a • Offsetting farm assets
complex matter. • Providing cash for
• New policy v. transferring policy non-farm heirs
• 3-year rule • Liquidity for buy-outs
• Gift-tax implications • Paying estate taxes.So you have a will… A simple
will based plan
do you also need a
trust? Spouses
(a trust based plan)
Will
Factors that help determine the answer: Surviving spouse
1. Complexity of your situation
2. Desire to avoid probate Will
3. Privacy
4. Cost HeirsWill or trust based estate plan: factors
Issue Will Plan Trust Plan
Complexity of situation Simple Complex
• Concerns about heirs Little or none Some or significant
• Remarriage concerns Little or none Some or significant
• Transition of operation Little or none Some or significant
• Estate taxes Little or none Need to maximize savings
Probate Don’t mind; probate judge is in Want to avoid; trustee is in
charge charge
Privacy Not important Important
Legal fees Less at outset; maybe more More at outset; maybe less
later laterWhat exactly is a trust? • A “container” with rules. • The container fills up with assets upon your death, and the rules direct what happens to the assets. – Assets can stay in, or assets can go out. • A trustee oversees trust administration. • You appoint who is the trustee. – Can be you, until your death. • You can change the trust if it’s “revocable.” – You can’t change an “irrevocable” trust, because you’ve let go of the assets.
Transfer of assets at death
TOD, POD,
survivorship,
Assets business entity,
insurance,
assignments
Will
Trust
Probate
Court BeneficiariesA simple trust Joint
Assets
First spouse passes
Grantor/settlor/trustor
• Owner creating the trust
Trust assets
Income and
• Land, cash, accounts, business
Principal to Trust Trustee
Surviving Spouse • Administers trust for grantor
Beneficiaries
• Recipients of trust property
Second spouse passes
HeirsJointly
Titled
Assets
Wife
A Husband passes
two
trust
plan Husband’s Wife’s
Trust Trust
HeirsTrust “rules” useful for farm transition
Conditions of inheritance How to deal with a second marriage of
Certain age, blood heirs only, finish education,
treatment for addiction, divorce
surviving spouse or heirs
Beneficiary must lease farmland to farming Create a real estate trust or LLC to hold land
heir or designated tenant longer term
Grant heir a Right of First Refusal to
Special rules for heirs with disabilities
purchase land or home
Grant farm successor option to purchase Contributions to church, non-profit, alma
land and machinery with specific terms mater, etc.
A creative and willing attorney can
tailor rules to your situationExamples
of trusts Trust 1- Goals:
Protect farmland
Preserve sibling relationships
Address child’s special needsLease of land
until death of
Mom & Dad’s second spouse Farming
Trust 1 Trust Child 3
Sale Option to
proceeds purchase land at
discount at death
of second spouse
1/3 sale
proceeds 1/3 sale 1/3 land
or land proceeds
or land
Farming
Non-farming
Child 3
Child 1
Non-farming
Child 2
Income to child,
then to
grandchildTrust 2 - Goals: Balance assets to farm and non-farm heirs Provide opportunities for grandchildren Protect the land
Non-farm
heir has
Trust 2 right to
lease house
Real Estate
Dad’s Trust Trust
1/2 of land,
must lease to
Farming Heir
Death of farming heir
l/2 of land,
subject to Held until
easement age 25
Non-farm assets - Option to
life insurance, Farm LLC, purchase if
accounts restricted to farming
blood heirs
Grandchild Grandchild
1/3rd
Non-farming 1/3rd
Child Farming
Grandchild
Child 1/3rdTrust 3 - Goals: Keep farm assets in family after second marriage Provide income for second spouse
Trust 3
Farm Cash, personal assets Non-farm
Spouse Spouse
Farmland
Non-Farm
Farm Partnership
Operating Assets Spouse
Trust
Farm Spouse
Trust
Farm (children are
Spouse’s
trustees) Non-Farm
Children Spouse
ChildrenHow do you feel about trusts? (poll question) • A trust could be helpful to our farm transition • A trust probably isn’t necessary for our situation • We have a trust and are happy with it • We have a trust and may need to amend it • I’m not sure… • I’m overwhelmed!
In our next session:
• Gifting Visit with attorney Homework:
• Agricultural easements Robert Moore of
Wright & Moore 1. Review materials
• Limited Liability Companies Law Co, LPA
• Operating agreements 2. Use worksheets
• Buy-sell agreements
Worksheets and 3. Send questions
• Leases law bulletins are for next week to:
• Strategies…. online for you aglaw@osu.edu
• Moving forwardPlanning for the Future of Your Farm
Part 2:
Peggy Kirk Hall
The Legal Side of Assoc. Professor, Agricultural Law
hall.673@osu.edu
Farm Transition
Planning OSU Extension Agricultural &
Resource Law ProgramYou can also read
