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March 2012 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.

Supplemental Needs Trusts Explained

Mar 29, 2012

 

A Supplemental Needs Trust (sometimes called a Special Needs Trust) is a specialized legal document designed to benefit an individual who has a disability. A Supplemental Needs Trust can either be "testamentary" (part of a Last Will and Testament) or a "stand alone” document, created during your life. A Supplemental Needs Trust enables a person under a physical or mental disability to have, held in Trust for his benefit, a certain amount of assets provided by the trust makers (you). In a properly-drafted Supplemental Needs Trust, those assets are generally not considered countable assets for purposes of qualification for certain governmental benefits.
 
Often, professionals will suggest to their clients to create the stand alone Special Needs Trust immediately, and then fund it with a small amount of assets. This would serve as a “test” for the newly created Special Needs Trust, ensuring that it works with the proper authorities (Social Security, IRS, etc.). This test would allow for any necessary changes to take place while you, as the trust creators, are still able to. If you wait to fund the trust until death, without previously “testing” it, it is a difficult ordeal to find out that it is defective for one reason or another. Moreover, you still have all the abilities to further fund the Special Needs Trust at a later date (through your wills). This way, you have assurances that it will work as you intended.
 

 

 

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.
 

"Income in Respect of Decedent" - A potential issue in estates

Mar 01, 2012

When a farmer passes away their estate may include property that is income to that person, but was never taxed during the person’s life. This is known as “income in respect of decedent” (IRD.) IRD is subject to both income tax and estate tax (if the net worth is large enough.) One example of IRD includes property sold on a contract, but the completion of the contract occurs after death. 

Why does it matter? Generally, when someone dies, their property will receive a step up in basis equal to the fair market value of the property at the time of death. When the property is sold there is generally little tax ramifications because its basis is stepped up. If an asset is deemed to be IRD income, then the heir / beneficiary receiving the property will pay income tax on it without being allowed to receive a step up in basis. This creates a large disparity in tax liability, depending on the character of the asset. 
 
There are "governing rules" with this; however, what constitutes IRD can vary depending on the type of income received, the accounting method used, and when the income is actually received. Arguably the most difficult question in the area of IRD is determining which receivables are subject to IRD treatment. Depending on the situation and character of the receivable can result in a very different tax treatment. 
 
If you are working through an estate where there is a question of IRD, it is important to get professional assistance to work through the complexities. 
 
_______________________
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.

 

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