Kansas and Missouri Estate Planning

What Kind of Estate Planning Should I do Before I "Buy the Farm"?

 When most folks think of estate assets, they tend to think of stocks, bonds, cash, collectibles, a family business, a personal residence and maybe a vacation home or timeshare.

For some Americans, especially out here in the heartland, an essential estate asset is right under our very feet.

Farmland.

And lots of it.

Guess what, God is not making any more of it either.

Consequently, family farming and ranching operations are critical to anyone who shops at the grocery store, let alone those who work the land as their calling.

Because farmland is an "illiquid" asset, great care must be taken to avoid its "liquidation" due to taxes, family feuds or good, old-fashioned lack of proper estate planning.

So, why the sense of urgency, Kyle?

Good question.

We need look no further than a recent article in the Black Hills Pioneer “Planning for Farmland” for our answer.

It seems a quarter (1/4) of the nation’s agricultural land is likely to change hands in the next decade, according to the USDA Natural Resources Conservation Service (NRCS).

Accordingly, it is to everyone's benefit that this huge amount of land remain productive and valuable.

Again, the key to realizing this pressing goal is effective estate planning.

To this end, the NRCS notes that estate planning can help in at least four (4) ways:

1. Transfer ownership and management of the agricultural operation, land, and other assets to a new operator;
2. Avoid unnecessary transfer taxes, such as income, gift, and estate) taxes;
3. Provide for financial security and peace of mind for all generations; and
4. Foster the next generation’s management capacity. 

As explained in the original article, an organization under the NRCS is the American Farmland Trust (AFT).

Its purpose?

The AFT serves agricultural landowners, concerned citizens, planners, local officials, state agency staff, land trusts, and policymakers.

In short, the AFT is the go-to resource for answers to complex questions on all types of issues. 

If you are part of a farming and/or ranching family, do not go it alone.

Consult an experienced estate planning attorney to ensure your farmland is protected so you can protect your family. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: Black Hills Pioneer (September 4, 2015) “Planning for Farmland”

Of Gentlemen Farmers and Tax Breaks

"Green Acres is the place to be. Farm livin' is the life for me. Land spreadin' out so far and wide. Keep Manhattan just give me that countryside." So began the title song before each weekly episode of one of television's greatest weekly sitcoms. The attorney-turned-gentleman farmer (Eddie Albert) and his gorgeous, pampered city wife (Eva Gabor) brought us a lot a lot of laughs for more than six years starting back in 1965. 

The show was ahead of its time on many levels. If you have not discovered (or rediscovered as an adult) Green Acres, then you owe it to yourself to track it down and enjoy the fun afresh with your children and grandchildren.

I digress. [What else is new, right?]

While the Eddie Albert character, Oliver Wendell Douglas, was a "gentleman" with a love of farming itself, it seems a new crop of "gentlemen farmers" have found some serious tax benefits attending the hobby. 

Consider a recent Barron’s article titled “A Harvest of Land-Related Tax Breaks.” 

It seems some of the members of nation’s farming community may surprise you. Click over to the original article for some household names in the fields of entertainment, politics and business who have a "gentlemen" farming interest. 

While most tax breaks for landowners occur in a single year, according to the original article, property-tax discounts awarded for agricultural activities are “reaped” annually, just like soy beans, corn, and alfalfa. 

In fact, it turns out that farmers "who own as little as three acres and engage in agricultural practices such as hay harvesting, bee keeping, chicken raising, and designating land for grazing animals may find themselves rewarded by localities with an enormous discount of up to 95% on property taxes."

That is not chicken feed, is it?

For example, consider taxpayers using their land to grow timber. There are benefits beyond the property-tax breaks. And timberland is great for wealth preservation.

Even when land values or the demand for timber tails off, the trees on your farm continue to grow. Experts say timber growth can provides an annual return of roughly 2% and 6% a year, and once you sell your timber, your profits are taxed as capital-gains, instead of higher income-tax rates. Ordinary income is only realized when you manufacture products like pulp or poles from your timber crop.

Consider a conservation easement as another vehicle from which to generate a substantial income-tax deduction. How does this work?

A conservation easement is a portion of land earmarked as off-limits to development. Consequently, you would see an income-tax deduction equal to the value of the land assigned to the easement when it was created.

The estate-planning benefits are also worth noting. Why? An easement depresses the value of the property. Accordingly, when it is subject to estate taxes in the future, this will be at a lower value. The property’s value will also be reduced when you sell.  

If you plan on passing your land to future generations, you might be able to discount the value of your property for gift and estate-tax calculations, but you need to start the property-transfer process during your lifetime.

Be sure to consult with an experienced estate planning attorney about these scenarios before taking any action. Like all estate planning considerations, none of this is a do-it-yourself project.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website. 

Reference: Barron's (February 28, 2015) “A Harvest of Land-Related Tax Breaks”