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2019 farm succession planning presentation mer Slide 1 2019 farm succession planning presentation mer Slide 2 2019 farm succession planning presentation mer Slide 3 2019 farm succession planning presentation mer Slide 4 2019 farm succession planning presentation mer Slide 5 2019 farm succession planning presentation mer Slide 6 2019 farm succession planning presentation mer Slide 7 2019 farm succession planning presentation mer Slide 8 2019 farm succession planning presentation mer Slide 9 2019 farm succession planning presentation mer Slide 10 2019 farm succession planning presentation mer Slide 11 2019 farm succession planning presentation mer Slide 12 2019 farm succession planning presentation mer Slide 13 2019 farm succession planning presentation mer Slide 14 2019 farm succession planning presentation mer Slide 15 2019 farm succession planning presentation mer Slide 16 2019 farm succession planning presentation mer Slide 17 2019 farm succession planning presentation mer Slide 18 2019 farm succession planning presentation mer Slide 19 2019 farm succession planning presentation mer Slide 20 2019 farm succession planning presentation mer Slide 21 2019 farm succession planning presentation mer Slide 22 2019 farm succession planning presentation mer Slide 23 2019 farm succession planning presentation mer Slide 24 2019 farm succession planning presentation mer Slide 25 2019 farm succession planning presentation mer Slide 26 2019 farm succession planning presentation mer Slide 27 2019 farm succession planning presentation mer Slide 28 2019 farm succession planning presentation mer Slide 29 2019 farm succession planning presentation mer Slide 30 2019 farm succession planning presentation mer Slide 31
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2019 farm succession planning presentation mer

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Planning for the transition of the family farm to the next generation is not a "one-size-fits-all" exercise. Just like many tools are needed on the farm, multiple planning tools should be used to most effectively protect the farm and transition to the next generation

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2019 farm succession planning presentation mer

  1. 1. Succession Planning Toolbox Wills, LLCs, Trusts, and TOD Basics Presented through Purdue University Extension
  2. 2. Why Use Multiple Tools in Succession Planning The right tool for the right job When all you have is a hammer, everything looks like a nail
  3. 3. Setting Goals The importance of orientation Preserving for Generations: Who are you doing this for? Farm Management and Ease of Operation Transfer Farm to Next Generation Liability Protection Measure up to your Goals? Howdoesyourplanning
  4. 4. Other Considerations Stage of life or business Sources of capital Inter/Intra family issues Risk management Taxes
  5. 5. What Are Your Assets? (Management Level: Easy -> Hard • Cash or cash-like assets (grain) • Retirement or other beneficiary accounts (IRAs, 401(k), Life Insurance • Equipment and other BIZ personal property • Land • Other Non-farm assets (vacation home)
  6. 6. A Word About Federal Estate Taxes $11.4M 2019 Exemption per person 01 Portable between spouses 02 Unified Gift / Estate / Generation Skipping Rate 03 Capital Gains Taxes 04
  7. 7. A Word About Federal Estate Taxes Large estate owners should talk to a team of professionals – accountants and lawyers. You can afford it and you need it! For everyone else, the goal is ease of transition, not tax minimization However, the Succession Plan should not interfere with the farm operation
  8. 8. A Word About Timing Different priorities for different stages of life Plan for multiple generations – but not for all generations Plan for flexibility
  9. 9. The 5D's of Farm Succession Planning Death Divorce Disability Disaster Disagreement
  10. 10. Farm Succession Risks Risks from outside (the world) Risks from inside (the family) Challenges to MENTALLY pass the farm to the next generation (are they ready?) Risks from operations (livestock, tractors, farmland) Risks from Government (FSA limits, other gov’t restrictions
  11. 11. Succession Planning Tools Remember, there is more than one tool in a toolbox.
  12. 12. Entities as Farm and Succession Devices Business purpose Liability protection Organize operations Greater flexibility Better profitability analysis Estate planning purpose Protection from family or creditors Greater flexibility in planning Easier transfer of assets
  13. 13. Succession Planning Tools: An Overview Entity: Use of an entity for farm and estate planning. (LLC // Corporation // S Corp // Partnership) Wills: A traditional estate planning device that should always be included. Trusts: How to effectively use trusts in estate planning. TOD: Transfer/ Pay on Death designation
  14. 14. Limited Liability Corporation Best suited for Farmland: container for succession. Operational: container for liability. Succession Planning benefits Transfers ownership, not dirt. Preserves business model. Preserves farm land heritage. Centralizes management.
  15. 15. Wills Everyone needs a Will Everyone understands the concept A single document that will sweep up any missed planning
  16. 16. Trusts Use with LLC for best effectiveness Minimize Trust presence "in the world" for greater flexibility Trust as ONE tool, not the only tool  If managed correctly, can transfer assets seamlessly to next generation Can become overly complicated if not used strategically
  17. 17. Transfer on Death/Pay on Death Best Suited For: Personal bank accounts Investment account (watch broker limitations!) Non-farm assets (like vacation home) Watch state-by-state application Succession Planning benefits Can be used for any property
  18. 18. Other Estate Planning Tools Life Insurance Lifetime Gifts Planning for a Stepped Up Basis
  19. 19. Fair – vs – Equal Planning should consider the needs of both "On-farm" and "Off-farm" heirs Whether Off-farm heirs can incorporate farm income into their personal finance profile Use of non-farm planning tools to equalize an estate, leaving more farm assets to On-farm heirs (like life insurance and cash investments) Special Needs – Special Heirs Physical / Mental infirmity can qualify for Gov't entitlements Legal issue Residence issue
  20. 20. Succession Planning Case Study First Generation Plans for Transition
  21. 21. Succession Planning Case Study First Generation Plan for Transition Timing of Transition During Life After Death of Spouse 1 After Death of Spouse 2 Options Buy Out Rent Out Other Family Gift Bequest Questions What will be the most fair and effective way to pass the farm business to the next generation? When should the change take place?
  22. 22. Succession Planning Case Study Family Members Mom and Dad GEN 1 Brother (On-Farm) Gen 2 Minor Gen 3 Minor Gen 3 Sister(Partially On-Farm) Gen 2 Adult Gen 3 Adult Gen 3 Sister(Off-Farm) Gen 2
  23. 23. Mom and Dad – GEN 1 (Traditional Model) Farm Real Estate 2,500 Acres @7,500 Farm Home $150K Farm Equip- ment (Dad) $1M Grain Inven- tory (Dad) $1M Retirement/ Investments (Mom & Dad joint owners) $500K Florida Home (Mom & Dad joint owners) $75K Total Assets = $19,475,000
  24. 24. Farm Operation 2,500 Acres Grain only (no livestock) On-Farm son is full- time employee 1 other full-time employees +seasonal Moderate debt
  25. 25. On-Farm Brother Home on farm Some separate farm real estate Some separate equipment Farms with Dad Spouse and children Partially-on-Farm Sister Home off farm Helps with some farming (FSA paperwork, bookkeeping) Spouse with full employement and separate retirement account Off-Farm Sister Home off Farm Fully Employed No spouse or children GEN 2 GEN 2 GEN 2
  26. 26. Grandchildren (GEN 3) Minor Child Minor Child Adult Child Adult Child
  27. 27. Case Study – Pros and Cons Planning OpportunitiesOptions: LAND Pros Cons Land ownership in GEN 1 names, no entities. Ease of transfer, stepped up basis. Subject to liability issues. Multiple heirs = multiple names on the deed, and possible control issues in later generations. Land ownership in CORP Land stays protected from human liability and human creditors. Land stays intact through generations. No stepped-up basis. Possible double-tax if sold. Difficult to unwind corporations, and least flexible model. Land ownership in LLC Land protected from human liability. Stepped up basis available. Central control and management. Can be adjusted at any time. All owners pay annual income tax on their tax profile (can be pro or con). Requires separate tax return. Land ownership in Trust Unfamiliar business model, which can cause account complications and tranfer issues. Not a business model; it's an estate model. Keeps ownership out of probate if done correctly and maintained. Ensures that land will go as intended by Mom and Dad.
  28. 28. Options: Business Model Pros Cons Sole Proprietor (Dad) Easiest and most direct way of doing business Difficult to let control go, difficult to parse ownership to next generation, difficult to transition, and greatest liability risk. LLC (Mom and Dad, to start) Easy to set up, operation is very similar to Sole Proprietor model. Easy to transition to next generation and bring on new owners. LLC can be replicated as many times as needed (One entity for each "business" of the farm, like livestock, grain, employees). Not completely protected. Heirs can demand to cash out and might be able to take property. Corporation Operation – S Corp Stable, easy to set up, high level of protection for owners and assets “locks” land basis forever. Taxable on termination to both Entity and Owners Case Study – Pros and Cons
  29. 29. REVIEW – What tools are in your toolbox? Entities Last Will & Testament Trusts TOD/POD Used in combination tailored to the goals of your family and farm
  30. 30. REVIEW – What is the approach to succession planning? Identify goals Identify family members who will benefit from planning Identify and mitigate risks Use multiple tools to achieve goals TALK TO A PROFESSIONAL!
  31. 31. Any Questions?
  • MichellePalma19

    Nov. 29, 2021

Planning for the transition of the family farm to the next generation is not a "one-size-fits-all" exercise. Just like many tools are needed on the farm, multiple planning tools should be used to most effectively protect the farm and transition to the next generation

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