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Transferring Your Estate You Bought It and Built It: Now What?

Transferring Your Estate You Bought It and Built It: Now What?. Brett Crosby Custom Ag Solutions United States Department of Agriculture Risk Management Agency (RMA) January 22, 2011. Program Sponsorship, Coordination, and Delivery. USDA / Risk Management Agency (RMA)

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Transferring Your Estate You Bought It and Built It: Now What?

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  1. Transferring Your EstateYou Bought It and Built It: Now What? Brett Crosby Custom Ag Solutions United States Department of Agriculture Risk Management Agency (RMA) January 22, 2011

  2. Program Sponsorship, Coordination, and Delivery • USDA / Risk Management Agency (RMA) • Oversees $62B Federal Crop Insurance Program • St. Paul, MN, Regional Office (One of Ten) • Relatively Few Employees (About 500) • Main Offices in Washington, DC, and Kansas City, MO • Custom Ag Solutions • Crop Insurance Education Programs • Risk Management Tools (BeefBasis.com and CTRAT) • Rural Appraisals • Technology Development

  3. Disclaimer Custom Ag Solutions is neither legal counsel nor tax advisor. This presentation is intended to inform, but not advise. Before taking any estate planning steps, you should consult with legal and tax professionals.

  4. Planning For Transition • Why Plan? • Provide For Retirement • Provide For Heirs • Minimize Tax Burden • Ensure A Legacy • Family Unity

  5. Steps To Succession • Build Succession Team • Professionals • Successors • Inventory Assets • Identify Goals of Affected Parties • Build Succession Vehicle

  6. Building a Succession Team • Owners (all owners) • Successors • Legal Counsel • Tax Advisor

  7. Inventory Assets • Identify Assets To Pass On • Business • Personal • Earning Potential and Value • Include Liabilities • Full Disclosure

  8. Identify Needs and Goals Owners • Security • Family harmony • Reward • Control

  9. Identify Needs and Goals Successors • What am I working for? • How to plan for the future • Expectations

  10. Build a Succession Vehicle Typical Vehicles • Limited Partnerships • Limited Liability Companies • Corporations • Trusts • Wills

  11. Limited Partnerships • Distribute ownership • Retain control • Business purpose • Operating agreement • Limits liability • Tax considerations

  12. Limited Liability Companies • Liability protection • Business purpose • Shared Control • Operating agreement • Tax Considerations

  13. Corporations • More complicated than LLCs and LPs • C VS S corporations • Ownership restrictions (S) • Dividend restrictions (S) • Tax Considerations

  14. Trusts and Wills Trusts Wills • Bypass Probate • Revocable • Irrevocable • Grantor • Trustee • Beneficiary • Miscellaneous assets • Personal effects • “Pour-over” wills.

  15. Other Succession Vehicles • Mortgages • Life Estates • Charitable Remainder Trusts

  16. Miscellaneous Observations • Avoid shared ownership • Plan for the end of the ride • Entities can survive multiple generations. • Avoid conflicts of interest • Seek professional help

  17. Costs • Costs vary widely • Attorney, Tax Advisor, Other • Small estates as little as $1,000 • Larger estates may take $10,000 or more • Take it in steps, if necessary

  18. Real World Example • Bob & Betty Johnson (55 years old) • 1,200 acres, $6 million value • NOI $120,000, lease value • Three married sons, oldest (John) works on the farm

  19. Real World Example Issues • Retirement • Equal treatment of children • Estate Taxes

  20. Real World Solution Documents and Entities • Documents • Will • Operating Agreements • Durable Power of Attorney • Living Will • Entities • Johnson & Johnson Trust • J&J LLC • Johnson Family Limited Partnership • John Johnson LLC

  21. Real World Solution Johnson & Johnson Trust (3%)General Partner Ownership Personal Assets (97%)Limited Partner Ownership

  22. Real World Solution Johnson & Johnson Trust (3%)General Partner Ownership Personal Assets 22% Limited Partner Ownership 75% Limited Partner Ownership Johnson Sons

  23. Real World Solution Johnson Farm Johnson Family Limited Partnership Personal Assets General Partner Interest (3%) Limited Partner Interest (97%) J & J LLC Johnson & Johnson Trust Johnson Sons

  24. Real World Solution Johnson Family LP • Life estate • John Johnson LLC leases farm • General partners compensated with lease income • Right to purchase remaining interest

  25. Johnson Cash Flows Johnson Family Limited Partnership John Johnson, LLC John Johnson Lease Income: $90,000/YR Partnership Interest Purchase $30,000/Yr $40,000 $50,000 FLP Investment Reserve Bob & Betty Living Expenses $80,000

  26. Wrapping It Up • Life estate expires • John becomes general partner • Purchases 50% interest • 1/3 from cash reserve • 2/3 using graduated mortgage • Trust allows sons to avoid probate • Pour-over will takes care of car

  27. Final Thoughts • Start now • Communicate • Rely on professionals

  28. For More Information • www.christmastreeriskmanagement.com • Custom Ag Solutions • www.customagsolutions.com • 877-227-8094 • bcrosby@casnow.com

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