Jul 31, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin


July 2011 Archive for Farm Estate and Succession Planning

RSS By: Andrew Zenk

This blog focuses on making complex and difficult topics in estate and business planning understandable and applicable to the reader.

Andy is an Agribusiness Consultant for AgCountry Farm Credit Services, Fargo N.D., a farmer owned cooperative and part of the Farm Credit System serving eastern North Dakota and northwest and west central Minnesota.

DIFFERENCES BETWEEN A LAST WILL AND TESTAMENT (“WILL”) AND A REVOCABLE LIVING TRUST

Jul 15, 2011

 

DIFFERENCES BETWEEN A LAST WILL AND TESTAMENT ("WILL")
AND A REVOCABLE LIVING TRUST
 
A last will and testament ("will") and a revocable living trust can both achieve the estate planning goals for families. They are two types of "vehicles" commonly used in estate planning. Some differences between a will and a revocable living trust and points of comparison between the two are as follows:
 
1. A revocable living trust has no special affect whatever on any tax, whether income tax, gift tax or estate tax, compared to a will. The very same tax planning can and usually does take place in either document.
 
2. Some expenses upon death will be the same either way. Lawyers and accountants must be hired and paid when a person with property dies, no matter what form the estate plan takes. Likewise, the delay in final distribution of the property, since that depends on getting everything in order (whether with court help or not), is usually about the same.
 
3. A revocable living trust can save some on Probate Court expenses. It usually takes more time and effort to check everything with the Probate Court, file notices, file accountings, and so forth. This extra work often leads to extra expenses.
 
4. A revocable living trust is private and is not required to be filed in court. A will must be filed with the court. 
 
6. A revocable living trust can be a hassle during life. The trust is only as good as the assets it owns / controls. A revocable living trust requires that all substantial property, EXCEPT RETIREMENT ACCOUNTS, be "owned" by the revocable living trust.  This is called "funding." The revocable living trust, and everything involved, i.e. keeping records, and the whole concept, can be difficult for many people. 
 
7. Whereas a will can be a little more expensive after death, a revocable living trust is more expensive during life.  A revocable living trust generally costs more to create, and there is a substantial amount of time and effort required at the creation of the trust.
 
8. A revocable living trust provides some protection upon disability. It can provide for someone to take over the management of finances should you become incapacitated. This is much easier and cheaper than a court-ordered conservatorship, if this ever becomes an issue. However, this problem can also be solved by the use of a Durable Financial Power of Attorney.
 
9. Neither a will nor a revocable living trust is able to provide any protection of assets from creditors or lawsuits for the trust makers. Moreover, neither a will nor a revocable living trust provides any protection from a possible long term care expense. Instead, the assets are fully accessible whether or not they are titled in your name individually or in the name of the trust.
 
When planning, it is important to consider your own personal goals with estate planning. This will help you determine what "vehicle" is best for you. 

 

__________________________

 

Disclaimer: The information contained in this publication provides a general overview on various topics and is strictly for informational purposes only. The reader should consult a qualified professional for advice based on his/her specific circumstances. AgCountry Farm Credit Services and the writer of this blog make no representations as to the accuracy or completeness of any information on this site or found by following any link on this site, and shall not be liable for any errors or omissions herein or for any losses or damages resulting from the display or use of this information. 
 
Required Disclosure Pursuant to IRS Circular 230: Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code; or (2) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.
 

Farmland Trusts Overview

Jul 11, 2011

 

Farmland Trusts - Explained
 
A lot of farming families struggle with how to equitably distribute the land and other farming assets, once both of the parents has died. This is a very difficult question to answer, especially when there are farming and non farming children. The "right" answer is different for all families. Often my role in helping define this distribution is to provide explanations of different options available to achieve the "right" answer for the farm land distribution. One option that is frequently used, especially with families who have minor children or children who are adults, but still deciding on what they want to do with their lives, is called a "farmland trust." 
 
A farmland trust is a "testamentary" trust (established after both of the parents’ deaths through their estate planning documents - wills or revocable living trusts) that would own the farmland for a term of years after both parents have died. It would be established only at the time of both deaths; and not applicable any time before then. At both parents’ deaths, the trust would be the "owner" of the property; however, the beneficiaries (those entitled to the income) would be whoever the parents choose – normally, all of the children, equally. The trust would be the landlord of the property, and choose a tenant to farm. Each year the trust, acting through it’s trustee (chosen by the parents in their estate planning documents), would set the cash rent price, would collect the cash rent and pay all costs and property taxes. Once the net income is derived, the trustee would then distribute the profits to all of the children in an equal manner. 
 
The main attraction to this type of trust is that it keeps the real property as a "unit" and preserves the farmland for a term of years. This can be beneficial, as it gives your children time to decide whether or not they want to farm. If they do want to farm, the trust would direct the trustee to offer the land first to your farming child. The cash rent paid would be for fair market value (or discounted if the parents’ wanted it that way). In this situation, the farming child would wear two "hats." They would farm the land and pay the cash rent. They would also be an equal beneficiary of the net income from the land, wearing their second "hat" as a beneficiary of the trust. This benefits the farming child in two ways: 1) they have land that is guaranteed to be available to them at fair market rental value; and 2) it would be an automatic "discount" to them, as they will receive their share of the net proceeds back as a beneficiary. 
 
If none of the children decide to farm, then the land would still be farmed, but by someone else. In this situation, the trustee would be directed to find a suitable tenant and ensure that cash rent is paid and other duties, just as described above. The land remains in the trust and the children the beneficiaries, regardless. 
 
Another potential benefit of a farm land trust is asset protection. Testamentary trusts can provide for asset protection against untimely deaths of the beneficiaries (keeping the land in the family), creditors, lawsuits and ex-spouses, assuming the documents contain the right language. This is very "state" specific, and it is important to talk with your experienced attorney for what options you may have in this regard.    
 
Once the term of the trust is over (determined by the parents in their estate planning documents), the trust would dissolve and the land would be distributed as the parents direct in their estate planning documents. This distribution is different for everyone. Sometimes, people using this type of plan will indicate that if there is a farming child paying rent to the trust for a term of years, it will be viewed as if they have "bought" the land from the trust. In this instance, the trust states that the land will go to the farming child, outright. How this happens can be done in a variety of ways: either all of the land goes to the farming child, or a portion of it.  Or he or she may have to pay the non farming children, but at a discounted rate. There are a lot of options here – depending on what you want. One thing I stress often is, regardless of "who" owns the land once the trust is over, the importance of the goal to individually split the land so that each of the children receives his or her share as individuals; and not undivided interests where they are each owners with each other (tenants in common.) Again, this is something to discuss with your attorney, but my view is that individual ownership is beneficial, as usually all families have children with their own lives and goals which differ with their siblings. If they each owned their share of the land individually, there would be no hindrances on any of them with inconsistent goals.  
 
Testamentary farmland trusts can be a good tool in developing the fair and equitable distribution of assets at both parents’ deaths. However, as with anything in estate planning, there may be some drastic consequences, based on law or otherwise. As always, it is very important to talk with your professionals about this, should you be interested in a farmland trust. 

________________________

 

Disclaimer: The information contained in this publication provides a general overview on various topics and is strictly for informational purposes only. The reader should consult a qualified professional for advice based on his/her specific circumstances. AgCountry Farm Credit Services and the writer of this blog make no representations as to the accuracy or completeness of any information on this site or found by following any link on this site, and shall not be liable for any errors or omissions herein or for any losses or damages resulting from the display or use of this information. 
 
Required Disclosure Pursuant to IRS Circular 230: Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code; or (2) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.
 

 

 

Log In or Sign Up to comment

COMMENTS

Hot Links & Cool Tools

    •  
    •  
    •  
    •  
    •  
    •  

facebook twitter youtube View More>>
 
 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions