Family Business Meetings–Helping Farms Communicate

by David Marrison

Tommorrow, I will be teaching at the Kentucky Cattlemen’s Convention about communication issues for farms in transition.  Poor family communications are at the center of many farm transition and estate transfer problems.  One way which farm families can improve communication is to hold family business meetings.  Chris Zoller of Ohio State University wrote a nice factsheet on tips for successful business meetings and it can be found at:

http://ohioline.osu.edu/bst-fact/pdf/3612.pdf

What other strategies have you found to improve family communication?

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New Rules for Estate Taxes

by Jim Skeeles & Chris Bruynis, OSU Extension Educators

Congress passed new legislation in December affecting estate taxes, but only for 2011 and 2012, reducing federal taxation of large estates. This legislation affects families with an individual who dies in 2011 or 2012 and has assets more than one million ($1M) or an individual that gifts more than $1M dollars during this period.

With this law change, an individual can pass on a total of $5M worth of assets with no federal estate or gift tax due. Further, if the net worth of an individual’s estate combined with the total counted amount given exceeds $5M, the federal estate and/or gift tax rate has been reduced to 35%.

Also upon the death of the first spouse, the surviving spouse now receives the unused $5M exclusion of the deceased spouse. Since the surviving spouse also has her exclusion of $5M she now can transfer assets totaling $10M, either by giving them away, the assets going through her estate, or a combination of the two.

Since the federal estate tax and gift taxes are “unified”, the $5M exemption is for the combination of the value of the estate and total value of “counted” gifts over a lifetime. For instance, if the value of one’s estate is $5M and counted gifts of $1M were made over that person’s lifetime, for a total of $6M, then the amount over the exclusion, the $1M, would be taxed at 35%.

However, if the estate value is $1M with counted gifts being another $1M, the unused exclusion that could be passed onto a surviving spouse would be $3M [(5M exclusion – 1M used for estate – 1M used for gifts = 3M available to be passed onto surviving spouse) + 5M exclusion of surviving spouse = 8M available exclusion to surviving spouse].

Any assets given per person per year that total over $13,000 (has increased from $10,000 originally since indexed for inflation) count against that individual’s $5M unified exclusion. Each time a gift is over $13,000 per person per year the giver is required to file a gift tax return listing all such gifts with their income tax return for that year.

If the total counted gifts accumulate to more than $5M during one’s lifetime, gift tax will be assessed at 35% for the amount exceeding the $5M, to be paid along with income tax. If that occurs, there will be no estate tax exclusion left so estate taxes will be assessed at 35% on any countable assets in the estate.

These estate tax and gift tax changes will give a reprieve to those with estates over $1M, but only for the next two years. Those families with large estates who live into 2013 will have to give away assets to lock in these provisions. Keep in mind that if you are going to “give” assets through a trust and have them qualify for the exclusion that the assets have to be truly given and no strings can be attached. That means that assets must be truly given away or given to an irrevocable trust with someone else being the trustee.

Ohio House introduces bill to repeal Ohio estate tax

This was posted on Peggy Hall’s AG Law Blog yesterday.  Good update

Ohio House introduces bill to repeal Ohio estate tax

Posted: 24 Jan 2011 02:13 PM PST

A bill introduced in the Ohio House of Representatives proposes a complete repeal of the Ohio estate tax.  Representatives Grossman and Hottinger introduced H.B. 3 on January 11, 2011. The bill is simple:  it amends the estate tax provisions currently in Ohio law to state that the tax provisions apply only to estates of persons who died before January 1, 2011. Regardless of when the bill would become effective, persons dying after January 1, 2011 would not be subject to the estate tax. The bill also removes the estate tax return filing requirement for estates of persons dying after the January 1, 2011 date.

The Ohio estate tax is a graduated tax on a person’s gross taxable estate, less deductions and exemptions.  An estate valued at less than $338,333 pays no tax due to credits and exemptions included in the law.  Estates between the value of $338,334 and $500,000 pay a 6% estate tax while estates over $500,000 in value owe a 7% estate tax.  The state receives 20% of the estate tax revenue and the local government of the decedent’s residence receives the remaining 80% of the tax.  Ohio is one of 17 states that have an estate tax.

How is agriculture affected by the Ohio estate tax?  It’s not uncommon for a farm estate to be valued at the taxable threshold of $338,334.  However, qualifying farm properties that elect the special use valuation option in the estate tax law can further reduce the taxable amount of the estate up to an additional $500,000.  The special use valuation election provides that qualifying farmland will be valued at the lesser Current Agricultural Use Valuation amount; qualifications for the election relate to keeping the farm in the family.  Sound planning and proper use of special use valuation thus can reduce the Ohio estate tax burden for farms that intend to continue the farm business after the loss of an active farm family member.

The idea to repeal the estate tax is not a new one; several prior attempts have not met with success.  A bill identical to current H.B. 3 was proposed last year, but the bill never made it out of the House Ways and Means committee.   Will the change in Ohio’s elected officials yield different results?  The current House Ways and Means committee will hear sponsor testimony on the H.B. 3 at its hearing on January 26, 2011.

International Farm Transition Network Conference Coming to Ohio

The International Farm Transition Network will host their annual conference July 20-23, 2010 at the Sheraton Suites in Cuyahoga Falls, OH. This three day meeting will bring together agricultural professionals, farmers, citizens, and service providers to discuss and learn about exciting projects in farm transition. 

During the conference, participants will hear panel discussions on farm labor, beginning farmer and farm succession research, and farm policy, and listen to interns, apprentices, and retiring farmers discuss their needs related to farm transition.  Registration is still open!  For registration, agenda, and more information, please visit: http://www.cvcountryside.org/farmland/IFTNConference.php

AgTransitions Web Site Helps Farms in Transition

I received an email from the University of Minnesota’s  Center for Farm Financial Management which has developed a web site called AgTransitions.  This web site provides a means for farm and ranch families to develop a written transition plan on the web. I encourage you to check it out! 

AgTransitions is located at https://www.agtransitions.umn.edu

AgTransitions provides users with a built in “curriculum” in the form of an outline for sections that might be included in a plan, tips for each section, web resources, and worksheets. Most importantly, it allows family members to communicate with each other and outside reviewers as they develop their plan. AgTransitions is not intended to replace farm succession planning workshops. Rather, it provides a means for producers to put what they have learned into action while allowing professionals to follow-up on their progress.  A great introductory video is included on the home page.

Planning for the Succession of your Family Business

As the age of farm operators increases, transferring the ownership and management of the family business to the next generation will become one of the most important issues farm families will face. While many farmers dream of seeing their legacy passed onto the next generation, many postpone initiating a plan for the transition of their business for a variety of reasons. Many claim  there is not enough “time” to discuss these matters. Or if planning does occur, it simply involves the senior generation drafting a will describing how the farm assets should be divided among heirs.

To help farm families plan for the future, OSU Extension will be hosting a Transferring Your Family Business to the Next Generation workshops across Ohio in March.  These workshops will help answer the questions that often arise when planning for the future: Who will manage the business in the future? How much money will I need to make it through retirement? How do I treat each offspring fairly when it comes to dividing up our farm? How will I know if my kids are ready to take over the farm? What are the legal hoops that need to be jumped through to pass the farm on without hurting the financial standing of the farm? How can we plan so the farm will be profitable for multiple generations? Is there enough equity in the farm that I can retire without selling out?  These workshops will help you develop a plan for the future, discover ways to increase family communication, make plans for retirement, and learn strategies for transferring management skills and the farm’s assets from one generation to the next. 

The workshop teaching team will include: Dr. Bernie Erven, Professor Emeritus of Agricultural Economics at The Ohio State University, Peggy Kirk Hall, Attorney and Director of the OSU Agricultural & Resource Law Program and Paul Wright & Robert Moore, Attorneys at Law and former OSU Extension Specialists.

Programs will be held in Ashtabula, Erie, Muskingum, Tuscarawas, Clermont or Defiance counties.  If you are interested in attending one of these workshops, please contact the host county extension office to receive registration information. 

Workshop Locations

Erie County-   March 11, 2010 (one-day session).  Call 419-668-8219 for more details.

Defiance County –  March 15 & 18, 2010.  Call 419-782-4771 for more details.

Muskingum County –  March 16 and 23, 2010.  Call 740-454-0144 for more details.

Ashtabula County-   March 22 & 29, 2010.  Call 440-576-9008 for more details.

Tuscarawas County-  March 23 & 24, 2010.  Call 330-339-2337 for more details.

Clermont County-  March 25 & 26, 2010.  Call 513-732-7070 for more details.

Ohio changes transfer on death deed to an affidavit process

This blog was just posted early this morning by Peggy Kirk Hall (attorney and director of the OSU Agricultural & Resource Law Program) on her OSU AG Law blog located at: http://ohioaglaw.wordpress.com/

Here is her blog:

Since 2000, Ohio law has allowed property owners to avoid the probate process with a transfer on death deed, a deed that automatically transfers real property to a designated beneficiary upon the death of the property owner.   Under a new Ohio law, such transfers now require the preparation of an affidavit rather than a transfer on death deed.  The new law also allows those who hold “survivorship rights” in property to transfer their rights upon death, which the previous law prohibited. 

The changes occurred in S.B. 124, which became effective upon the governor’s signature on December 28, 2009.  The Ohio State Bar Association’s Real Property Law Section proposed the changes to simplify the transfer on death process and remove confusion over the rights of those holding survivorship deeds. 

See the bill and its changes to Ohio Revised Code Chapter 5302  here.     The Legislative Service Commission’s analysis of S.B. 124 is available here.   Visit this website for a good summary of the law.