1. Protecting the Family
the Farm,
and the Legacy
February 14, 2012
Presenter: Miriam Robeson
Attorney
www.lawlatte.com
2. Old Model
• Farm until you die, then kids divide
• Multi-generation farms
Today’s Model
• Less than 10% of people raised on a farm return to the
farm
• Older farmers are seeking slow-down or
retirement, but may still rely on farm income
What will happen to YOUR farm?
What legacy do you want to leave your
children?
3. < 2% of US Population claims farming as
an occupation (960,000)
90% of farms are owned by individuals
3% of farms are owned by corporation
• 90% of corporate farms are family-owned
1935 – 6.8 million farms
2002 – 2.1 million farms
Average age of farmer = 57 years
4. < 1/3 of farms have a designated
successor
More difficult for “Traditional Farm” to
support a family (or families)
Increased regulation contributes to cost
and difficulty of maintaining a family farm
78% of farmers plan to transfer control to
the next generation, but 40% of farmers
have no formal succession plan.
6. Source: USDA Economic Research Service
number of farms
5000
size of farms
4000 value land/bldg
3000
2000
1000
0
1900 1925
1950 1974 1997 2002 2007
7. Source: USDA Economic Research Service
50 46.2
44.4
45 41.6 41.9
37.9 38.8
40
35
30
25 20.4
20
13.4 13.1
15 11.4
10 6.2 7.9
5
0
Multi-Operator and Multi-Generation
Multi-Operator, but not Multi-Generation
8. When do you need to consider more
aggressive planning?
2012-- $5M per person/$10M per married
Estate Tax Exemption
• Top Estate Tax Rate = 35%
2013 ???? -- $1M per person
• Top Rate = 55%
10. Valuation of Farm/Non-Farm Assets
• How much is $10M?
1,600 acres @ $6,000/acre
1,500 acres @ $6,500/acre
1,400 acres @ $7,000/acre
• Assets to consider:
Farm real estate • Cash/Investments
Equipment • Homestead
Grain/livestock
11. Larger Estates – Estate Tax!
• Payment of Estate Tax may require liquidation of
assets
• Liquidation of assets may generate Capital Gain
Tax (for example, if in a corporation)
• DOUBLE-TAX Effect – unnecessary estate tax
PLUS unnecessary liquidation/Capital Gain Tax!
12. State Tax on transfers
• $100,000 exemption per child
• No tax on spouse transfers
• For farmers, there will be Inheritance tax
STAY TUNED – Indiana General Assembly is considering phase-
down or phase-out of Indiana Inheritance Tax
Current graduated level from 1% - 10% (> $1.5M per heir)
• If you have (approx) $10M estate and 3 children, your estate
will pay approximately $1M in Indiana Inheritance Tax
13. 1. Transfer to next generation
2. Minimize taxes
3. Preserve farm
4. Treat all children “fairly”
14. Husband & Wife Planning
• All Farm Real Estate “Tenants in Common”
• Allows greatest flexibility for use of Estate Tax
Exemption
Farm Holding Corporation
• H&W own their own shares
• Can use Discount Valuation techniques
Testamentary Trust
• Estate > Federal Exemption goes to Trust
• Income to Surviving Spouse/Rest to Heirs
15. If Active Participation by Child(ren)
Use of Entity to mix transfer during life and
transfer at (parents’) death
Plan for 3, 5, and 10 year goals
Involve next generation
• “on farm” and “off farm” children
16. FSA Program Planning – be sure your
planning allows for “active participation”
Power of Attorney – Allows Child to manage
your affairs
Estate – An effective way to
Life
transfer/protect assets
Insurance – Can be used to help pay
Life
taxes or balance estate between farm/non-
farm heirs
17. Planning considerations change if there are
no heirs who are interested in maintaining the
farm operation.
Factors:
• Your needs/desires – retirement, continued
income, care in infirmity, tax planning
• Your children’s needs/desires – inability to
understand/manage farm assets, desire for inheritance
in more familiar form (cash)
18. 1. Individual
2. General/Limited Partnership
3. C Corporation (Traditional)
4. S Corporation (Pass-Through)
5. Limited Liability Company (LLC)
19. Reduces taxable estate through planned
giving
Facilitates
use of alternate valuation
(Discount Valuation/Special Use Valuation)
Smoother transition to next-gen management
Downside – no stepped-up basis for real
estate
20. Gen 1 (Mom & Dad)
Gen 2 On- Gen 2 Gen 2 Off-
Farm Near-Farm farm
Gen 3 Gen 3 Gen 3
Gen 3 Gen 3
Off-farm Off-farm Off-
On-farm On-farm
(minor) (minor) Farm
21. 2nd Marriage (is there a pre-nup?)
• 1st Generation
• 2nd Generation issues with 2nd marriages
Divorce/Death
Special Needs spouse or child
Creditors/Financial troubles of heirs
Minors (children/grandchildren)
Incapacity (parent/spouse/child)
22. Trustsare a popular estate planning tool
Farm planning should use trusts when –
• Special Needs heir
• Minor Children
• Large Estate (> $10M in 2012)
• Real Estate in more than one state
Trusts should be used with care
Living Trusts versus Testamentary Trusts
23. BE FLEXIBLE! Don’t put any techniques in
place that cannot be “unwound” later if the tax
climate changes
PLAN NOW! The longer you have to “work
your plan,” the better you can accomplish
your goals in spite of changes in the law.
INCLUDE THE NEXT GENERATION in your
planning. “Family Goals” are more flexible
than “Gen 1” Goals
24. Information is based upon TODAY’S tax picture –
Note that the current Estate Tax law may change
at the end of 2012
Many variables = many options – the examples
presented are just to get you started
Talk to a professional! Tax and law experts
Be Flexible! You may need to change your plan as
circumstances (and the law) changes!
25. Communication
• Talk to your spouse
• Talk to your children
• Talk to your tax/legal professionals
26. Threefactors for success in Farm Estate Tax
Planning
• Plan Early – it’s never too early to start planning for the
future of the farm and the next generation
• Plan Often – reviewing your plan frequently allows for
minor adjustments as the law or family changes and
major adjustment more quickly
• Be Flexible – Understand that you may need to slightly
or dramatically change your plans based upon the
change in the law or family. Don’t do anything that
cannot be un-done, later.
27. Any Questions?
A copy of this presentation may be downloaded
from the Presenter’s Website:
http://blog.lawlatte.com/index.php/2012-
workshops/
Miriam Robeson, Attorney
www.lawlatte.com
