Highlights from the Farm and Ranch Income Tax/Estate and Business Planning Conference
THE COUNSELOR
Volume 9 • Issue 8 • August 2019
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. In this month’s issue, we will discuss highlights from the 2019 Washburn School of Law Farm and Ranch Income Tax/Estate and Business Planning Conference. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
Last week, the 2019 Washburn School of Law Farm and Ranch Income Tax/Estate and Business Planning Conference was held in Steamboat Springs, Colorado. Nationally recognized presenters from around the country discussed the latest developments in income tax planning, estate planning, and business planning. What follows are several highlights and takeaways from the presenters at the conference: Roger McEowen, Paul Neiffer, Timothy Sullivan, and Stan Miller.
A myriad of income tax planning opportunities and land mines exist for farmers and ranchers, but they can be complex. You need a qualified accountant who is familiar with and keeps up to date on the tax issues related to farms and ranches.
Ill considered “boilerplate” language in legal documents such as operating agreements or trusts can cause serious unintended consequences. Legal documents should be prepared by a qualified attorney who takes the time to consider the implications of so-called boilerplate provisions to ensure that the intentions of the parties are realized.
Planning should be flexible to allow adjustment when inevitable changes to the legal requirements occur.
A court case in Wyoming determined that keeping the ranch together was a legitimate reason to continue the trust.
Withdrawal of company funds in excess of proportional interest did not create a second class of stock.
In South Dakota, a family was held responsible for estate taxes 19 years after the death of the farmer.
Powers of Attorney should be planned and crafted with no less care than wills and revocable trusts.
One of the primary causes of family disharmony in the administration of an estate is the naming of a child or children to serve as trustee, personal representative (executor), or a financial agent. Concerns include:
document interpretation issues;
fee issues;
negligence or malfeasance;
workload burden;
child becomes a target.
Parents should choose a financially astute third party to serve as a fiduciary. The cost of disputes can far outweigh the cost of the professional fiduciary.
A child could be added to serve as a co-fiduciary with the professional or certain decisions could require the approval of children. This could be especially important in the farm and ranch context.
Loans to children should be treated as an advancement that reduces a child’s share. Any modifications or forgiveness must be in writing. Oral promises are ignored.
Any agreements for payment to a child providing services must be in writing.
You should explain the reason for any disparity between gifts to children in your will or trust.
Will or trust should require mediation of any disputes.
Planning for estates should include income tax planning to maximize the basis step-up.
Long term care planning is a must for farmers and ranchers who wish to transfer the farm or ranch to the next generation.
Life insurance with a long term care rider is a great option that should be considered.
Some planning options still exist even after a spouse has entered a nursing home.
Eight strategies were presented to reduce the risk of losing the family farm or ranch:
Reduce outside liability risks through use of business entities and proper insurance (for larger operations captive insurance can be a great option).
Plan ahead for the transition of ownership. In doing so, getting outside help can be essential.
Understand and utilize new technology.
Anticipate changes in consumer preferences.
Keep the farm together – don’t divide and distribute. Consolidate.
Make it difficult to sell the farm or ranch.
Create incentives to keep family members farming.
Create and preserve a non-financial purpose on the farm. Create and share the legacy that is being protected.
Legislation to extend tax provisions with termination dates that are typically extended, has not been enacted. Some of these expired in 2017.
Farm Bill retained the 2014 $900,000 AGI limit.
Can exceed the $900,000 AGI limit under the Market Facilitation Program if more than 75% of income is from farming.
Limit is per entity and then per individual. A general partnership or joint venture is not treated as an entity.
Farm Bill payment limitations:
ARC/PLC - $125,000
Peanuts ARC/PLC – separate $125,000
CRP - $50,000
2018 MFP - $125,000
2019 MFP - $250,000
Actively engaged rules expanded to include cousins, nieces, and nephews. The manager limitation is extended if there are only family members.
Dairy Margin Coverage (DMC) replaces Margin Protection Program (MPP).
CRP acreage cap increased to 27 million acres by 2023.
2019 MFP sign up ends December 6, 2019.
At Hallock & Hallock, we strive to keep up to date with the latest trends and opportunities so that we can provide the best service to our Clients. One of the ways we do this is by regularly attending and participating in national gatherings of thought leaders on these subjects. Many other ideas were conveyed at this conference, too numerous to include in this newsletter. If you would like to discuss how any of these ideas can help you, your family, or your farm or ranch operation, please come visit us.
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.