Tag Archive for: Estate Planning

Estate Taxes on Nebraska Farmland: What Do They Mean for Your Heirs?

If there’s one topic we address more frequently on this blog than others, it is the issue of estate planning, and for good reason: It is one of the most important actions a landowner takes to ensure that ownership passes along to the next generation in a smooth, straightforward manner. Proper estate planning allows one’s heirs a fair share of the estate and a comfortable living, while also ensuring that they are not left with crippling estate taxes.

It is often helpful to start at square one when discussing taxable inheritance. In Nebraska, property that is left when a property owner dies is taxed. This is known as the inheritance tax, and the rate of inheritance tax that is applied to an heir depends upon how closely the inheriting person was to the deceased. The surviving spouse is always exempt from the inheritance tax, no matter the amount he or she inherits. Similarly, charitable, religious, and educational organizations who receive money from estates are also not taxed, provided that certain requirements are met.

All other inheritors are divided into groups, with the closest relatives paying the lowest tax rate. If the amount received is $40,000 or less, no taxes are owed. This exemption applies to parents, grandparents, siblings, children, and grandchildren of the deceased. If the amount inherited is more than $40,000, the inheritance tax is one percent of the clear market value of the property. For the next tier of inheritors (aunts, uncles, nieces, nephews, and spouses of these persons) the inheritance tax exemption is $15,000. Amounts above $15,000 are taxed at a rate of 13 percent. For all other inheritors, the rate is 18 percent of any amount over $10,000.

For farming families, given the high value of land, it is readily apparent that these amounts may add up rather quickly, and even a 1 percent tax rate owed on a single quarter of land could be difficult for many inheritors to pay. This is where estate planning comes in: Carefully structured estate plans, with the help of qualified lawyers and accountants, can alleviate these issues for one’s heirs, while ensuring the continuance of the farm, if desired. Several estate planning tools, including unified credit, gift, annual gift tax exclusions, or trusts, allow inheritors to avoid the severe taxes that may be incurred when a relative dies.

The benefits of forming a proper estate plan are too many to include here. Estate planning is a vitally important part of ensuring that the work you’ve put into your farm and land is kept intact as you head into retirement. It is important to pass along your assets to your children and grandchildren, without leaving them a heavy tax burden in the process, while also ensuring a financially secure retirement for yourself. If you have questions about estate planning, contact a UFARM land manager; they are able to help you sort through your options and point you in the right direction.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Sources consulted:  Hawbaker, Joe M. “Farm and Ranch Estate Planning: An Introduction.” Cfro.com. Center for Rural Affairs. Web. 08 Jul. 2015.  Randolph, Mary. “Nebraska Inheritance Tax.” NOLO Law for All. Nolo. Web. 08 Jul. 2015.

 

How Newly Proposed Capital Gains Tax Rates May Affect Landowners

Capital Gains Taxes for landowners

When a landowner sells property, the difference between the sale price and the basis (the original purchase price plus improvements and less depreciation) is known as a capital gain, and the tax incurred upon it is known as capital gains tax. Among the many concerns of farmers and landowners, how to handle the capital gains taxes that can be incurred upon the sale of a farm or farmland is one of the most difficult issues to navigate. For many landowners, these taxes incurred by the sale of land can be crippling. The same is true of the next generation who may incur these taxed upon inheriting a farm.

In comments to reporters earlier this year, Ag Secretary Tom Vilsack spokes about finding ways to remove the tax disincentive that prevents landowners from selling land. Currently, he said, it’s more beneficial for landowners to hold onto farmground, and allow heirs to take over the land and sell it with the stepped-up basis, and thus avoid tax penalties. Vilsack spoke of the need to help offset those taxes in such land sales. Most landowners and farmers would agree.

Knowing this, President Obama’s latest proposal to raise the capital gains and dividend rate from 20 percent (23.8 percent when combined with the new taxes that resulted from the Affordable Care Act) to 28 percent for taxpayers with income above $450,000 for joint filers and $400,000 for single filers brought concerns for everyone, and especially landowners who will have a farm sale in their future. Specifically of interest to landowners is the president’s proposal to close the “trust fund loophole” that allows wealthier Americans to avoid capital gains taxations through stepped-up basis by letting wealthy people pass on appreciated assets to their heirs tax-free.

As such, rather than actualizing Vilsack’s desire to help landowners avoid debilitating capital gains taxes upon selling land, it would seem that the capital gains tax would be higher, and the possibility of utilizing the stepped up basis would be eliminated altogether. According to DTN Ag Policy Editor Chris Clayton, farm groups have largely supported stepped-up basis as a way to transfer the farm within the family without the heirs getting hits with higher capital gains taxes, should they choose to sell the property.

While this news may be troubling, immediate chances that these new tax policy proposals will pass are very small, considering Republican control of both the House and the Senate.

However, capital gains taxes are still high, and having a plan in place to avoid incurring ruinous taxes—or passing them onto one’s children—is highly recommended. Consult a land manager and a tax consultant to keep on top of the latest rates and scenarios that could help mitigate such an occurrence. Researching the possibility of a 1031 exchange may be a good consideration as well.

Do you have concerns about capital gains taxes and your land? Feel free to contact a UFARM land manager; we’re glad to listen to your concerns and implement a strategy for your farm asset.

Sources consulted: Biebl, Andy. “Whither Capital Gains Rates?” DTN The Progressive Farmer. DTN. 04 Mar. 2015. Web. 25 Mar. 2015. Clayton, Chris. “White House Tax Plan Targets Capital Gains, Stepped Up Basis.” DTN The Progressive Farmer. DTN. 18 Jan. 2015. Web. 25 Mar. 2015.

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Agricultural Estate Planning Done Right

Agricultural Estate PlanningOne of the questions we get the most involves estate planning—and for good reason. Estate planning, or the lack there-of, is one of the top issues that many farmers and landowners face. It should go without saying that every farm operation should have a plan in place, because the problems associated with poor planning can not only jeopardize the farm operation itself, but relationships as well. Estate planning doesn’t have to hurt: here are some ways to get it done, and done right.

Why do so many farmers and landowners resist creating a plan in the first place? Some say that the plan is known and agreed upon already by family members, or those engaged in farming. This is a major assumption, and many families have been surprised by what they “knew” and “agreed upon” when the issue finally comes up. Others have a plan drafted, but have failed to re-visit the plan for years, often amidst greatly different laws or circumstances. Yet others assert their plan to simply divide the estate equally among their children. While this sounds easy and fair, it often creates problems among farm and non-farm offspring, and often ends in a farm/land sale.

Obviously, this should be avoided at all costs. One thing that is in general agreement is for the land and assets to provide a living for future generations, and to prosper for the long-run. The main goals of any plan are to:

a)     Transfer ownership to the intended party with as few complications as possible.

b)     Avoid costly estate taxes, usually done with the help of a land manager, lawyer, and accountant who are well-versed in estate planning.

c)     Ensure a secure financial future for the following generation. This often means setting up a plan so that the estate pays for retirement costs, funeral costs, or the costs associated with settling the estate—and not the beneficiaries themselves.

d)     Develop the management skills of the estate’s beneficiaries in a way that is agreeable to all parties involved. A properly planned estate will set up an ownership and transfer method that suits the needs and timetable of both generations.

e)     Keep the land in agriculture if so desired.

To get started, set your goals—what main things do you want your plan to address? This can range from ensuring a solid retirement, caring for a spouse, to setting up who will take charge of the land and farm after death.

Next, determine your financial worth by verifying both your personal and business assets. This is best done by enlisting the aid of an accountant and a lawyer. They know what information is needed for an accurate assessment of the estate’s worth.

Determine what type of legal ownership and business structure you have already. Are you a sole proprietorship or a limited proprietorship? A Corporation or an LLC? It is necessary to know this before moving forward with your estate plan.

Once you have completed these initial steps, you are now in a position to put a solid estate plan down on paper with your team of consultants. Don’t wait—the costs of putting a plan together are small in comparison with failing to have a plan in place when it is too late.

Do you have questions about your estate plan? Don’t jeopardize your land asset—contact a UFARM representative with concerns—we are glad to help. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

 

Source consulted: Cowee, Margaret, and Kynda Curtis. “Key Concepts and Steps in Agricultural Estate Planning.” University of Nevada Cooperative Extension. University of Nevada. Web. 24 Nov. 2014.

 

 

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Gifting Land to the Next Generation

Gifting Farmland One of the more difficult aspects of owning farm or ranchland deals with how that land will be transferred to the next generation. In particular, identifying the correct process by which to pass on that land to children is one of the most important parts of estate planning. The good news is that successfully gifting land to the next generation needn’t be as difficult as it might initially seem.

For many people, estate planning gets pushed to the back burner for years. Some people feel they’re too young to worry about such things yet; others are reluctant to discuss estate planning for fear of bringing about family quarrels. Often times, the younger generation doesn’t bring up the need for a plan because they don’t want to be considered greedy about their inheritance, or they don’t want to think about their parents growing old. Undoubtedly, these are all valid concerns. However, should necessity arise, and an estate plan is not in place, the problems that result can be significantly more troublesome.

A great place to start is to identify—first as an individual, then a couple (if married), and finally, as a group/family unit—the goals that are important in the planning and transfer process. Think these through thoroughly, and jot them down. Having a clear purpose in mind, and reconciling the different goals at each level, is often the greatest hurdle in the planning process. Knowing and then discussing these goals—which are usually based on the values held important to each party—allows both generations to feel that their needs are being considered in the process.

The next step is to consider ownership options. Should titles and business structures be changed? Enlisting the help of an attorney, an accountant, a financial planner, and a professional farm and ranch manager, is the best way to make sure that the needs of both parties are met in an effective way.

Finally, one must choose the method by which they will pass on taxable wealth. This could be a direct cash transfer, a direct land transfer, or a FLP, LLC or LLP Unit Transfers. An FLP (family limited partnership), LLC (limited liability company) or LLP (limited liability partnership) is commonly used to transfer farmland value to children. According to farm CPA Paul Neiffer, “Each [FLP, LLC, or LLP] allows the land to transfer in and out of an entity with little or no tax liability and provides a shield against personal liability for any debts of the entity.” Another option is to form a trust. There are many types of trusts. The benefits of the latter two methods include the ability of the older generation to meet his or her retirement needs while simultaneously allocating income and passing on wealth to the next generation.

Estate planning is a vitally important part of ensuring that the work you’ve put into your farm and land is kept intact as you head into retirement. It is important to pass along your assets to your children and grandchildren, without leaving them a heavy tax burden in the process, while also ensuring a financially secure retirement for yourself. If you have questions about estate planning, contact a UFARM land manager; they are able to help you sort through your options and point you in the right direction.

United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact Us.

 

Sources consulted:  Danes, Sharon, Goetting, Marsha, et al. “Transferring Your Farm or Ranch to the Next Generation.” Montana State University Extension. Feb. 2014. Web. 08 Sep. 2014.
Neiffer, Paul. “The Farm CPA: The Gift Land Rush.” Agweb. Farm Journal. 28 Nov. 2012. Web. 08 Sep. 2014.

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Should Landowners Consider a Trust During Estate Planning?

Estate Planning for LandownersAmong the many decisions farmers and landowners make, the most important deal with estate planning. Unfortunately, estate planning often gets pushed to the back burner, and the wide array of options available to landowners is left unexplored. Being proactive in exploring these options can pave the way for a peaceful estate settlement that retains and passes on the assets in a mutually satisfying way for all involved parties.

Among the many estate planning options available to landowners is a trust. Trusts are an estate management tool that offer landowners flexibility and lots of customizable options. Ironically, the trust is also the least utilized estate management tool.

A trust is an artificial entity, created by means of a legal document, consisting of four basic elements: the trustee, the trust property, the trust document, and the trust beneficiaries. A trust allows a third party to hold assets on behalf of a beneficiary. The trust document specifies the rules of operation for the trust, the powers of the trustee, the beneficiaries to share in the income and principal from the trust, and instructions for distribution of the trust property.

How do you know if a trust is the right option for you and your land? The answer depends on a variety of factors, but as a landowner, you are already a good candidate, as trusts are ideal for those whose assets are largely in land. In addition, a trust might be a good fit for you if you meet one of the following conditions:

1)     You want to leave your estate to your heirs in a way that is not directly and immediately payable to them upon your death. For example, you may want to stipulate that they receive their inheritance in three parts, or upon certain conditions being met, such as graduating from college;

2)     You want to support your surviving spouse, but also want to ensure that the principal or remainder of your estate goes to your chosen heirs (e.g., your children from a first marriage) after your spouse dies;

3)     You and your spouse want to maximize your estate-tax exemptions;

4)     You have a disabled relative whom you would like to provide for without disqualifying him or her from Medicaid or other government assistance.

You may be asking why a trust is that different from a will. One difference is that assets may be gained sooner by beneficiaries, and that estate taxes may be significantly less or avoided altogether, depending upon the type of trust that is set up. Other benefits of establishing a trust include retaining control over your wealth, protecting your legacy, and retaining privacy by avoiding a public probate, saving costs and taxes along the way.

There are many types of trusts, and if you are considering one for your business assets and family, it’s important to discuss your options at length with an experienced attorney and estate planner before setting one up.

You’ve worked hard to get where you are – protect those assets for the next generation. If you are interested in exploring the estate planning options available to you, feel free to contact one of the experienced land managers at UFARM to help guide you.

United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s.

 

Sources consulted:

“Estate Planning: Is a Trust Beneficial?” CNN Money. CNN.com. Web. 10 Jul. 2014.

Leibold, Kelvin, and Melissa O’Rourke. “Trusts as an Estate Management Tool.” Iowa State University Extension and Outreach. Iowa State University. May 2014. Web. 10 Jul. 2014.

“What is a Trust?” Fidelity Investments. Fidelity. Web. 10 Jul. 2014.

How To Get An Accurate Land Appraisal

Land Appraisals

When it comes to many aspects of farm ownership, having a good idea of what the farm is worth serves as the basis from which many important decisions are made. Estate planning, dividing land among children, determining fair rental fees or lease terms, and tax or legal issues all depend on an accurate farmland appraisal. Especially in the last several years, which have seen burgeoning farmland values, it is more necessary than ever to have an accurate assessment of land value.

Since knowing the value of the farm and land is such an important part of managing it, it is to the benefit of all involved to seek an expert appraiser to aid in determining its value. Land appraisers are rigorously trained and are licensed or certified in all aspects of property appraisal, and can help walk you through the steps in determining the value of your farm. “The role of the appraiser is to provide objective, impartial, and unbiased opinions about the value of real property—providing assistance to those who own, manage, sell, invest in, and/or lend money on the security of real estate” (Appraisal Institute, www.appraisalinstitute.org.). They do this by putting together various aspects of the property—its physical characteristics, size, uses, and location—and develop a value based upon those specific characteristics.

As with any professional, experience is key. Experienced appraisers can help determine the most accurate value of a property, which is of vital importance. For instance, the failure to accurately price the property is cited as the number one mistake that is made when selling a farm. Failure to accurately assess the value of the farm and surrounding farmland results in less interest from potential buyers, and the maximum value attainable from the farm may be missed.

Another mistake that is frequently made is to determine the value of a property based on a biased appraisal—such as one from a favored lender who sets the appraisal value higher based on the desire to lend money based on that higher value. As a result, the market value of your farm is inaccurate. The best way to determine the value of a farm property is to seek the unbiased opinion of a professional appraiser.

When looking for a qualified appraiser, check that they meet at least the minimum state requirements for property appraisal. Licensed appraisers are better, while certified appraisers have attained the highest level of educational requirements. Both licensed and certified appraisers must pass a rigorous examination that is administered by the state’s appraisal board.

Experts and those who have learned the hard way agree: Don’t miss out on the knowledge that an experienced farm appraiser can offer. Decisions about your farm are among the most important you will make.

UFARM offers appraisal services from experienced, licensed and certified appraisers. They possess years of practical, local land market expertise and combine it with the latest appraisal technology in order for you to gain a clear and accurate value of your land.  Contact UFARM for your appraisal needs.

Estate Planning: Successfully Transferring Land to the Next Generation

Estate Planning: Successful Transferring Land to the Next GenerationWhen it comes to land management, one aspect that many landowners often put off for “tomorrow” is planning their estate’s transfer to future generations. However, estate planning is one of the most important actions landowners can take to ensure that one of their greatest assets is handled in a smooth manner once retirement age is reached or in the event of unexpected death or injury. It is essential for all parties involved to know what to expect, and having a plan in place offers peace of mind for both benefactors and those who will inherit land in the future.

There are many factors that must be taken into account when estate planning. Most obviously, experts emphasize the importance of having a legal plan in place, no matter how “settled” the land’s future is among the family. If there isn’t an actual legal document outlining the transfer, the state has the authority to allocate the assets according to state law. Having an estate plan that both outlines the distribution of assets as well as addresses business organization issues is essential for the successful transfer of the land to the final beneficiaries.

When estate planning, it is important to know how best to allocate farm ground among on-farm and off-farm children. Many initially conclude that the most equitable solution is to divide assets equally among all children. However, this avenue fails to take into account the difficulty the on-farm child would have in having enough money to buy-out his siblings, and often results in the land having to be sold to an outside party. Estate planning can address this situation, and allow the family farmland to remain in the family, as well as for all children to benefit as well.

In addition to the transfer of ownership, good estate planning helps reduce and avoid unnecessary taxes. Here it is especially important to have a trusted and competent advisor who is well-versed in tax law to avoid the considerable transfer taxes that can be incurred if not overseen carefully.

An estate plan also addresses many other key issues. It ensures practical ways to generate retirement income. It addresses how a spouse will be supported in the event of an unexpected death or injury, and covers medical and/or funeral costs. It also provides ways to secure a solid financial future for the next generation, including living and educational costs.

Experts agree: It’s never too early to establish an estate plan. In fact, waiting until retirement age can limit the ability to address tax concerns that may arise for heirs should they suddenly find themselves inheriting a large portion of land or other farm-related asset.

Ideally, estate planning is revisited often, since tax laws change frequently, and other factors such as land values can change greatly from year to year. It is important that landowners have trusted advisors to work with through the years in order to help them make these important decisions and to decide how best to manage the transfer of assets to the next generation.

United Farm and Ranch Management can provide complete solutions for your land.  Whether you need assistance with day-to-day management or long-term planning, our farm mangers can help.  Contact UFARM today for a free consultation.

When is the Right Time to Sell the Farm?

“Don’t sell the farm,” or “I wouldn’t bet the farm on it,” are well-known idioms, and for good reason: They are a very fair representation of the high stakes that accompany such a venture. Over the last decade in Nebraska, with a growing number of farmers and landowners at an advanced age, knowing how to go about selling their farming enterprises or passing them down to their children is fraught with difficulty, and there are many issues farmers must take into account when going about estate planning and passing along their life’s work to the next generation.

Selling the Family Farm

One such issue that must be taken into account is quite obvious, but often overlooked: Do the children actually desire to carry on the family farm? Often, this fact is simply assumed, and parents make arrangements early-on, only to find out too late that the sons or daughters have very little interest in farming. If this is the case, it is in the best interest of all involved that they hire a professional farm management company or sell the asset to an interested party, so that the money is able to benefit the family and allow them to pursue their own aspirations.

Many experts advise that parents sell—rather than gift—the farm to their kids. This ensures that the kids do, in fact, desire to farm since they are buying it with their own capital. This way, there is “skin in the game,” and the farm benefits as a result.

Perhaps the largest factors affecting the sale of farms are the tax consequences. Navigating the myriad federal and state capital gains, estate and inheritance taxes is tricky. Inheritance taxes, aka the “Death Tax,” can be an especially difficult tax to handle, especially for small businesses and for family farmers and ranchers. Often, those on the receiving end of farmland from the previous generation are forced to sell that land in part or whole just to pay the taxes. Nebraska is one of only six states nationwide that has a separate state inheritance tax, so Nebraska farmers must contend with this extra tax as well. Experts emphasize the importance of seeking sound legal counsel as well as to obtain advice from those with expertise in farm management in order to minimize the often crippling tax burdens that can accompany the inheritance of the family farm.

Above all, it’s important for farmers to have a plan. It’s never too early to start planning one’s own future business succession, and it’s simply another part of farm management.  If working with a farm  management company, have copies of reports sent to adult children, so they can learn about the farm before the parents are gone. A lack of planning can put huge amounts of stress on families, and even sometimes tear them apart due to bickering among siblings about what to do about the farm or land that they’ve inherited, in part or whole. This plan will need to be reviewed often, and perhaps will change many times due to varying outside factors, but at least there will be a plan in place to guard against such instances.

If you need assistance managing your farm or transitioning your land for the future,  please don’t hesitate to contact us at United Farm and Ranch Management .