1. Protecting the Family
the Farm,
and the Legacy
February 14, 2012
Presenter: Miriam Robeson
Attorney
www.lawlatte.com

2.  Old Model
• Farm until you die, then kids divide
• Multi-generation farms
 Today’s Model
• Less than 10% of people raised on a farm return to the
farm
• Older farmers are seeking slow-down or retirement,
but may still rely on farm income
 What will happen to YOUR farm?
 What legacy do you want to leave your
children?

3. < 2% of US Population claims farming as
an occupation (960,000)
 90% of farms are owned by individuals
 3% of farms are owned by corporation
• 90% of corporate farms are family-owned
 1935 – 6.8 million farms
 2002 – 2.1 million farms
 Average age of farmer = 57 years

4. < 1/3 of farms have a designated
successor
 More difficult for “Traditional Farm” to
support a family (or families)
 Increased regulation contributes to cost
and difficulty of maintaining a family farm
 78% of farmers plan to transfer control to
the next generation, but 40% of farmers
have no formal succession plan.

5. Source: USDA Economic Research Service
1.6
14.4 8.5
< 25
8.3 25-34
21.3
35-44
45-54
21.9
55-64
24 65-69
> 70

6. Source: USDA Economic Research Service
number of farms
5000
size of farms
4000 value land/bldg
3000
2000
1000
0
1900 1925
1950 1974 1997 2002 2007

7. Source: USDA Economic Research Service
50 46.2
44.4
45 41.6 41.9
37.9 38.8
40
35
30
25 20.4
20
13.4 13.1
15 11.4
10 6.2 7.9
5
0
Multi-Operator and Multi-Generation
Multi-Operator, but not Multi-Generation

8.  When do you need to consider more
aggressive planning?
 2012-- $5M per person/$10M per married
Estate Tax Exemption
• Top Estate Tax Rate = 35%
 2013 ???? -- $1M per person
• Top Rate = 55%

9. Source: US IRS Code
12,000,000.00
10,000,000.00
8,000,000.00
6,000,000.00 Exemption
Tax
4,000,000.00
2,000,000.00
0.00
2001 2002 2004 2006 2009 2010 2011 2013

10.  Valuation of Farm/Non-Farm Assets
• How much is $10M?
 1,600 acres @ $6,000/acre
 1,500 acres @ $6,500/acre
 1,400 acres @ $7,000/acre
• Assets to consider:
 Farm real estate • Cash/Investments
 Equipment • Homestead
 Grain/livestock

11.  Larger Estates – Estate Tax!
• Payment of Estate Tax may require liquidation of
assets
• Liquidation of assets may generate Capital Gain
Tax (for example, if in a corporation)
• DOUBLE-TAX Effect – unnecessary estate tax
PLUS unnecessary liquidation/Capital Gain Tax!

12.  State Tax on transfers
• $100,000 exemption per child
• No tax on spouse transfers
• For farmers, there will be Inheritance tax
 STAY TUNED – Indiana General Assembly is considering phase-
down or phase-out of Indiana Inheritance Tax
 Current graduated level from 1% - 10% (> $1.5M per heir)
• If you have (approx) $10M estate and 3 children, your estate
will pay approximately $1M in Indiana Inheritance Tax

13. 1. Transfer to next generation
2. Minimize taxes
3. Preserve farm
4. Treat all children “fairly”

14.  Husband & Wife Planning
• All Farm Real Estate “Tenants in Common”
• Allows greatest flexibility for use of Estate Tax
Exemption
 Farm Holding Corporation
• H&W own their own shares
• Can use Discount Valuation techniques
 Testamentary Trust
• Estate > Federal Exemption goes to Trust
• Income to Surviving Spouse/Rest to Heirs

15. Fed Exemption
All to Spouse to Kids (Gen 2)
Exemption amount Exemption
in Testamentary amount
Trust “outright”
Remainder Remainder
“outright” to Spouse

16. Pros Cons
Discount No Stepped
Valuation Up Basis
Ease of Less
Gifting Flexibility

17. A Smaller Piece of the Pie is worth less than
the fractional value of the whole pie.
• Minority Interest – owning a non-controlling share
• Lack of Marketability – Lack of ready market for
small closely-held and family corporations
• Common discount = 20-40%
• BIG tax savings!

18.  If Active Participation by Child(ren)
 Use of Entity to mix transfer during life
and transfer at (parents’) death
 Plan for 3, 5, and 10 year goals
 Involve next generation
• “on farm” and “off farm” children

19.  FSA Program Planning – be sure your
planning allows for “active participation”
 Power of Attorney – Allows Child to manage
your affairs
Estate – An effective way to
 Life
transfer/protect assets
Insurance – Can be used to help pay
 Life
taxes or balance estate between farm/non-
farm heirs

20.  Planning considerations change if there are
no heirs who are interested in maintaining the
farm operation.
 Factors:
• Your needs/desires – retirement, continued
income, care in infirmity, tax planning
• Your children’s needs/desires – inability to
understand/manage farm assets, desire for inheritance
in more familiar form (cash)

21. 1. Individual
2. General/Limited Partnership
3. C Corporation (Traditional)
4. S Corporation (Pass-Through)
5. Limited Liability Company (LLC)

22.  Reduces taxable estate through planned
giving
 Facilitates
use of alternate valuation
(Discount Valuation/Special Use Valuation)
 Smoother transition to next-gen management
 Downside – no stepped-up basis for real
estate

23. Gen 1 (Mom & Dad)
Gen 2 On- Gen 2 Gen 2 Off-
Farm Near-Farm farm
Gen 3 Gen 3 Gen 3
Gen 3 Gen 3
Off-farm Off-farm Off-
On-farm On-farm
(minor) (minor) Farm

24.  2nd Marriage (is there a pre-nup?)
• 1st Generation
• 2nd Generation issues with 2nd marriages
 Divorce/Death
 Special Needs spouse or child
 Creditors/Financial troubles of heirs
 Minors (children/grandchildren)
 Incapacity (parent/spouse/child)

25.  Trustsare a popular estate planning tool
 Farm planning should use trusts when –
• Special Needs heir
• Minor Children
• Large Estate (> $10M in 2012)
• Real Estate in more than one state
 Trusts should be used with care
 Living Trusts versus Testamentary Trusts

26.  BE FLEXIBLE! Don’t put any techniques in
place that cannot be “unwound” later if the tax
climate changes
 PLAN NOW! The longer you have to “work
your plan,” the better you can accomplish
your goals in spite of changes in the law.
 INCLUDE THE NEXT GENERATION in your
planning. “Family Goals” are more flexible
than “Gen 1” Goals

27.  Information is based upon TODAY’S tax picture –
Note that the current Estate Tax law may change
at the end of 2012
 Many variables = many options – the examples
presented are just to get you started
 Talk to a professional! Tax and law experts
 Be Flexible! You may need to change your plan as
circumstances (and the law) changes!

28. Communication
• Talk to your spouse
• Talk to your children
• Talk to your tax/legal professionals

29.  Threefactors for success in Farm Estate Tax
Planning
• Plan Early – it’s never too early to start planning for the
future of the farm and the next generation
• Plan Often – reviewing your plan frequently allows for
minor adjustments as the law or family changes and
major adjustment more quickly
• Be Flexible – Understand that you may need to slightly
or dramatically change your plans based upon the
change in the law or family. Don’t do anything that
cannot be un-done, later.

30.  Any Questions?
A copy of this presentation may be downloaded
from the Presenter’s Website:
http://blog.lawlatte.com/index.php/2012-
workshops/
Miriam Robeson, Attorney
www.lawlatte.com