Transferring Your EstateYou Bought It and Built It: Now What?

Brett CrosbyCustom Ag Solutions

United States Department of AgricultureRisk Management Agency (RMA)

January 22, 2011

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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

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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.

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Planning For TransitionWhy Plan?

•Provide For Retirement

•Provide For Heirs

•Minimize Tax Burden

•Ensure A Legacy

•Family Unity

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Steps To Succession

•Build Succession Team•Professionals•Successors

•Inventory Assets•Identify Goals of Affected Parties•Build Succession Vehicle

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Building a Succession Team

•Owners (all owners)

•Successors

•Legal Counsel

•Tax Advisor

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Inventory Assets•Identify Assets To Pass On

•Business•Personal

•Earning Potential and Value

•Include Liabilities

•Full Disclosure

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Identify Needs and Goals

•Security

•Family harmony

•Reward

•Control

Owners

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Identify Needs and Goals

Successors•What am I working for?

•How to plan for the future

•Expectations

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Build a Succession Vehicle

Typical Vehicles•Limited Partnerships

•Limited Liability Companies

•Corporations

•Trusts

•Wills

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Limited Partnerships

•Distribute ownership

•Retain control

•Business purpose

•Operating agreement

•Limits liability

•Tax considerations

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Limited Liability Companies

•Liability protection

•Business purpose

•Shared Control

•Operating agreement

•Tax Considerations

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Corporations

•More complicated than LLCs and LPs

•C VS S corporations

•Ownership restrictions (S)

•Dividend restrictions (S)

•Tax Considerations

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Trusts and Wills

Trusts•Bypass Probate

•Revocable

•Irrevocable

•Grantor

•Trustee

•Beneficiary

Wills•Miscellaneous assets

•Personal effects

•“Pour-over” wills.

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Other Succession Vehicles

•Mortgages

•Life Estates

•Charitable Remainder Trusts

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Miscellaneous Observations

•Avoid shared ownership

•Plan for the end of the ride

•Entities can survive multiple generations.

•Avoid conflicts of interest

•Seek professional help 

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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 

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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

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Real World Example

Issues• Retirement

• Equal treatment of children

• Estate Taxes

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Real World Solution

Documents and Entities

Entities

• Johnson & Johnson Trust

• J&J LLC• Johnson Family

Limited Partnership• John Johnson LLC

Documents

• Will• Operating

Agreements• Durable Power of

Attorney• Living Will

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Real World Solution

Johnson & Johnson Trust

Personal Assets (97%)Limited

Partner Ownership

(3%)General Partner Ownership

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Real World Solution

Johnson & Johnson Trust

Personal Assets

22% Limited Partner Ownership

75% Limited Partner Ownership

Johnson Sons

(3%)General Partner Ownership

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Real World Solution

Johnson & Johnson Trust

Johnson Farm

Johnson Family Limited Partnership

Personal Assets

General Partner Interest (3%)

Johnson Sons

Limited Partner Interest (97%)

J & J LLC

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Real World Solution

Johnson Family LP• Life estate

• John Johnson LLC leases farm

• General partners compensated with lease income

• Right to purchase remaining interest

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Johnson Cash FlowsJohn Johnson, LLC

Bob & Betty Living Expenses $80,000

Johnson Family Limited Partnership

$50,000

Partnership Interest Purchase $30,000/Yr

$40,000

FLP Investment Reserve

Lease Income: $90,000/YRJohn Johnson

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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

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Final Thoughts

•Start now

•Communicate

•Rely on professionals

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For More Information

• www.christmastreeriskmanagement.com

• Custom Ag Solutions– www.customagsolutions.com– 877-227-8094– bcrosby@casnow.com