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Learn about estate planning, wills, stock markets, rental agreements, and financial planning as tools for risk management in agribusiness.
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Other Risk Management Tools Unit 4: Agribusiness Management Lesson: AM12
Objectives Lesson Objective: • After completing the lesson on other risk management tools, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on an Estate Planning Fairytale. Enabling Objectives: • Draft a proposal for an estate plan. • Rationalize the use of wills in estate planning. • Justify stock markets, rental and leasing agreements, and good financial planning as a tool for risk management.
Key Terms • Estate planning • Estate tax • Gift • Tenancy-in-common • Joint tenancy • Tenancy by the entirety • Will • Beneficiary
Considerations in Estate Planning • Reasons for establishing the plan • Keep the farm in the family • Treat all children equally • Help children start farming • Reduce estate, income, and gift taxes
Estate Taxes • Tax on right of property owner to transfer property at death • Unified Transfer Tax • Federal tax that taxes transfer of property by gift or death • States have additional estate taxes
Retirement Provisions in Estate Planning • Choose several sources for retirement income • Savings • Employer-Sponsored Pension Plans • Tax Sheltered Retirement Plans – IRA, HR-10, SEP, QRP • Annuity • Trusts • Life Insurance • Social Security • Rental or Lease of Farm Property • Sale of Farm • U.S. Savings Bond • Stocks and Bonds • U.S. Treasury Bills • Nonfarm Investments • CD’s
Transferring Legal Ownership of Property • Will • Contract • Deeds prove the ownership of the land, but a legal contract must be created to formally sell the property.
Gifts • A properly signed, acknowledged, and delivered deed can grant land to be given away • Personal property can be given away if the intended recipient will become the present owner
Gifts • Co-ownership through • Partnership • Cooperation • Tenancy-In-Common • Each tenant has separate percentage of interest • Do not have right of survivorship so ownership is passed through a will to someone who will become a tenant with other co-owners • Joint Tenancy • Tenants hold single, unified interest in property • Right of survivorship, so ownership passes to joint tenant and not to deceased owner’s estate • 4 unities must exist – Unity of Time, Unity of Possession, Unity of Title, Unity of Interest • Tenancy by the Entirety • Exclusively for husband and wife • Right of survivorship • 4 unities plus Unity of Marriage is required
Wills • Legal statement of person’s wishes pertaining to disposal of property after death • Formally executed wills drawn by an attorney are recommended for estate planning • Will must be proven official and admitted to the courts • Immediate wishes should be left out of wills and given to entrusted relative or friend to execute • Wills have no effect until maker dies • Wills only control the property the maker of the will individually owned • Wills are not immediately effective upon death of maker
Why Have A Will? • Allow for distribution of assets as owner wishes, not by laws of descent • Reduced cost of settling estate • Owner can name own executor of will • Owner can name a guardian for minor children • Trust funds can be established • Ensures security of beneficiaries • Beneficiary – Person or institution administers money or property as instructed in the will • Avoid family conflict
Dying Without a Will • State laws govern estates of the deceased • Laws of Descent and Distribution • Court appointed administrator of estate • Court appointed guardian for minor children • Increased cost of settling estate
Trusts • Division of property, assets, businesses, etc. among a variety of owners • A way to avoid probate and estate taxes
Living, Revocable Trust • Most flexible estate planning tool • Maintains complete control until death • Capital and liquid assets are included • Somewhat complicated to set up
LLC • Limited Liability Company • Legal business organization • Introduced in Wyoming in 1977 • Missouri adopted this business organization in 1993
Benefits of LLCs • Flexibility • Most flexible business organization form • Treated as sole proprietorship for federal income tax • Combines best features of all business organizations • Liability protection like a corporation • Flexibility of partnership or sole proprietorship • Liability Protection • Member or manager of LLC not liable for the debt, obligation or liability of LLC
LLC Specifics • Management • Can be managed by members or by a specified manager • Manager – Member or members have no right to participate in management; Members like investors in a limited partnership or shareholders in a corporation • Must have at least one organizer • Signs articles of organization • Taxes and Legal Issues • For federal taxes, business must specify if it will be classified a sole proprietorship, partnership, or corporation • Missouri income tax follows IRS classification • For legal purposes, company remains an LLC under Missouri law
Conclusion • Risk management is imperative to a successful agribusiness enterprise. Using tools such as estate planning, the stock market, rental and leasing agreements, and good financial planning will help a business owner find success in managing their risk.
Exit Card • What did you learn today about risk management and the stock market, estate planning, rentals/leasing, and record keeping? • What questions do you still have about risk management and the stock market, estate planning, rentals/leasing, and record keeping?