Estate Planning and Estate Taxes—What You Need to Know

Estate planning and estate tax is a tiresome subject, and one that most of us would just like to sweep under the rug. However, it remains one of the most important matters that farmers and landowners attend to—the failure of which can result in scenarios ranging from annoying to nightmarish.

 

At UFARM, we field a lot of questions from farmers and landowners about this topic—and we are glad to have this conversation with our clients, knowing its importance. We offer appraisals and consultations that help you start off on the right foot as you develop an estate plan.

The most important step we take is to determine your overarching goals. Knowing and naming clear, concise objectives helps you to determine the best, easiest way to go about reaching them. These goals are generally the following:

  • What do we want from or for our farm business?
  • What do we want for our family?
  • What do we want for ourselves?
  • What do we want in our retirement?

Answering these types of questions is a compulsory starting point, and, answered clearly, point you in the right direction when making the rest of your estate planning decisions.

Similarly, we ask that all concerned parties affected by the business—whether they are farming, or non-farming, parents or grown children—be involved in this process of goal delineation. Then, after those goals are laid out, all parties should come together to create a plan that takes into account those goals, and prioritizes them in a mutually agreeable way. Don’t skip this step—it is in failing to do this that many unfortunate misunderstandings arise.

After you’ve discussed your overarching goals and laid out a plan, we work with you to put together a team to help you move on to the next step, addressing all legalities and technicalities in the process. This generally consists of consulting a lawyer and accountant well-practiced in estate planning.

Your team of estate planners will also be able to help you navigate the issue of estate taxes, and help you avoid crippling taxes that can result from poorly thought out planning. President-Elect Trump has emphasized frequently his desire to eliminate the federal estate tax and to limit burdensome capital gains taxes on small businesses and farms—also known as the “death tax.”

Senate Finance Committee Chairman Orrin Hatch agrees with Trump’s desire to see an end to the Death Tax, saying, “The death tax on family farms, small businesses, ranches and estates has crippled hard-working families for far too long. It ought to be repealed, plain and simple,” he said in an email to CNBC.

However, until we know for sure what will happen, a plan that covers all bases is necessary to avoid burdensome and potentially ruinous taxes when passing the farm from one generation to the next.

If you are needing to put together an estate plan and wondering where to start, let UFARM help. We are happy to work with you to lay out your goals and get the best people on the job to ensure a healthy, prosperous farm business for your children and grandchildren.

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. If you have questions about yields and productivity on your rented farmland, give the UFARM managers contact us today!

Sources consulted:
Dickler, Jessica. “Who Wins If Trump Repeals the Estate Tax?” CNBC.com. CNBC. 21 Nov. 2016. Web. 15 Dec. 2016.
“Transferring the Farm Business: First Focus on the ‘What.’” Agriculture.com. Meredith Agrimedia. 15 Nov. 2007. Web. 15 Dec. 2016.

 

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Inheriting Nebraska Farmland: Know Your Options

Inheriting Nebraska farmland

When it comes to most things in life, the saying “Know your options, or you don’t have any” is generally correct. This is certainly true for those who find themselves the inheritors of farmland. While oftentimes these recipients are already farmers themselves, it is increasingly common for non-farm children to receive land as an inheritance after their parents pass away. Suddenly, they find themselves facing decisions that may be completely foreign to them.

As the age of current farmland owners continues to increase, more and more people will find themselves in this situation. According to recent census data, the average age of farm operators was 57, with the fastest growing group of operators over 65. Landlord age is increasing as well.

Often, farms are jointly inherited by multiple parties—which may include both farm and non-farm children, a circumstance that often muddies the waters, especially should the deceased have inadequate estate planning in place.

For many people inheriting land, no matter their circumstance, enlisting the help of a professional farm management team is the first step toward successfully managing their new investment. Farm managers are proficient in such matters as determining the land’s worth and having it appraised, the ins and outs of land ownership type and how this affects the land’s management, whether or not the land should be sold and the consequences of doing so, explaining types of leases and helping negotiate them, determining the best way to manage the new ground, and many more key details.

A farm manager’s first action in helping inheritors of land is evaluating it: What is its location, and how does this affect the land’s current, best, and future use? What is the properties potential income based on its location? Is the land’s current use its best use?

After this, farm managers help assess the value of the land. Many are certified appraisers, and are able to provide a full, detailed appraisal of the farm.

A large part of inheriting land is knowing how to deal with inheritance and estate taxes that are incurred following the inheritance. Our farm managers are well prepared to help find expert accounting and legal.

After these initial determinations are made, farm managers then help you decide your farm options. Whether it’s to farm the land yourself, sell the land, or to keep the farm as an investment, knowing the options available to you in each instance is important. In each case, farm managers are able to guide you in the best direction in a way that will fit your individual needs and long-term goals.

In short, the decisions that accompany land inheritance are many and varied, and knowing that a knowledgeable person is helping you navigate these waters provides great peace of mind for inheritors. UFARM farm managers are motivated to listen to your needs and concerns about your farmland inheritance—feel free to contact us at any time.

 

Source consulted: Duffy, Michael D. “Getting Started In Farming: Inheriting a Farm.” Iowa State University Extension and Outreach. Iowa State University Extension. Web. 22 Jun. 2016 “So You’ve Inherited a Farm—Now What?” University of Nebraska-Lincoln CropWatch. University of Nebraska-Lincoln Institute of Agriculture and Natural Resources. 06 Apr. 2016. Web. 22 Jun. 2016.

 

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.

 

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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.

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.