FARM ESTATE PLANNING:

Presented by:Presented by:Okarsamaa B. White, M.S., AFCOkarsamaa B. White, M.S., AFC

Extension Educator, Financial ManagementExtension Educator, Financial ManagementUniversity of Maryland – Cooperative ExtensionUniversity of Maryland – Cooperative Extension

Family and Consumer SciencesFamily and Consumer Sciencesobwhite@umd.edu

FARM ESTATE PLANNING:

AN INNOVATIVE APPROACH TO EFFECTIVE COMMUNICATION WITH

FAMILY MEMBERS AND FARM EMPLOYEES FOR UNDERSERVED FARMERS AND

RANCHERS

Objective of Abstract

Introduce farm estate planning communication to underserved farmers and emphasize the importance of communication

Increase farmer’s understanding to effectively communicate strategies of transitioning family farm

Providing the transition of a family farm to family member (s) or/and non-interested family members and what options are available to protecting family legacy.

WHY COMMUNCATION!!

Who to trust and lack there of…

Difficult to communicate their intentions...

Plan of when to transition from farming operation…

Share information …

Estate Planning

Family Legacy

Farm ViabilityFarm Viability

Farm w/ No Plan

Two Instruments Used in Estate Planning

Wills and Trusts

Simplified definition of a Last Will and Testament – A will is essentially a legal document that lays out how you want your assets distributed at death.

Living Trusts (Revocable)

Revocable Living Trust – is complete will substitute. It can control all your assets both during your life and after your death. If a Farmer sets up a living trust, he/she

can transfer the title of all his major assets (farm real estate, stocks, bonds, etc.) from his name to the name of the trust.

He won’t lose control because he would name himself as the trustee and beneficiary.

Three Principle Obstacles In Planning Our Estate

Living Probate

Death Probate

Death Taxes

Estate Planning & Its Important

What is an Estate Plan?

- is a definite plan for managing your wealth while you’re alive and distributing it after death.

- Comprehensive Estate – arrange the ownership, management and distribution of your assets in ways that meet your needs and objectives while minimizing estate shrinkage.

- The goal of estate planning is to preserve the greatest amount of your wealth possible for the intended beneficiaries prior to your death. Your trust must entered into order to avoid penalties related to certain Federal and State tax laws.

Importance of Estate Planning

The Importance is to minimize and /or avoid:

Frustration HeartacheProbate Dissension

Underserved family farm have limited resources and it allows them to pass on a legacy (no matter large or small)

Communication is the KEY …. Wealth and Family Estate Planning

Purpose of Estate Planning Communication

Increase Awareness of farm estate planning

Increase farmer’s strategies for planning to transition from farming

Deciding how and when a farm estate plan should be implemented

Estate Farm Communication

You are merely planting the seed!

Encourage Farmers to attend Sessions

Encourage them to bring family members and farm employees

Have Farmers relay message to neighboring farmers to attend and support farm preservation.

Underserved Farmers and Rancher Communication Differentiate

Key to communication is to listen during farm visit

Determine individual needs (Assess)

Don’t assume (Farmer’s Goals or Desires)

Discuss situation until clear about their position and again don’t form an opinion

Farmers Communication Opportunities

Family Meeting (All family members – who could be an heir to the farm) Several Family meetings maybe required Listen to all parties’ interests Set Goals, Plan and Action for transition of farm

Family and Employees meeting (Discuss your plan to transition the farm operation to a family member or sale to interested employee

Innovative Approach to Increase Awareness of Farm Estate Planning

Underserved Farmers and Ranchers Create Estate Planning Listening Forum

a. Identify several farm families that have estate plans

b. Identify several farmers that have no estate plan

c. Inform farmers that listening forum and estate planning workshops are to protect their family legacy and preservation of farm businesses.

(Ex. This could be done 3 or 4 times a year.)

d. Listening Forum is to create and develop a relationship of trust and respect. (Estate Planning Attorney, Accountant, Tax Consultant, Financial Advisor, Insurance and Farmers).

e. Develop a one-day Estate Planning Seminar for farmers to receive expert advice to protect their assets, legacy and inheritance.

Estate Planning Awareness Create Partnerships with local county

and state agencies: Local University Cooperative Extension

Educator, Specialist and Field Faculty County Farm Bureau, District and County

Representatives USDA Agencies (NRCS, CSREES, FSA, etc.) State Land Preservation, Conservation &

Stewardship Programs

Who should inherit the farm?

Farm Business Farm Business

Farmer Requests Your Opinion

Let the farmer know that your are not an expert in “Estate Planning”

Your organization is coordinating a “Farm Estate Listening Forum” and a one-day Estate Planning Workshop

Inform him that he/she is not alone and doesn’t understand “Estate Planning”

Strategies of Farm Transition

Discuss their plan with all interested parties

Set their plan in motion (Dates and Time frame)

Write out their plan of action

Encourage farmers to develop their estate plan List every asset that they own or business party Meet with appropriate persons as mentioned

(Estate Planning Attorney, Tax Accountant, Financial Advisor and Insurance Company)

Estate Assets

All assets of any value that you own, including:

real property annuities business interests (farm operation,

farm supply store or equipment) insurance proceeds personal property even your personal effects

Farm OperationFarm OperationContinuationContinuation Heirs to farm

Plan of Action to Transition the Farm

Who, When and HowWho, When and Howto Transitionto Transition

FARM ESTATE SURVEY

Random survey sent to farmers Approximately 100 survey’s Requesting farm estate planning

Information. Survey sent to 6 counties out of 23. See questions and farmers responds.

Have you Established a Family Farm Plan Estate?

0

10

20

30

40

50

60

70

80

90

100

Yes No No Response Not Returned

What Type of Estate Plan Have You Implemented?

010

203040

50607080

90100

Written Will Living EstateTrust

No Response Not Returned

Have You Communicated Your Estate Plan to Others?

0102030405060708090

100

FamilyMember

AttorneyFinancialAdvisor

Family/Employee

Consultedwith others

NotReturned

Who Approached You about Transitioning the Family Farm?

0102030405060708090

100

FamilyMember

ExtensionEducator/

AgricultureManager

Nobody Attorney/CPA/ TaxAdvisor

NotReturned

Upon Passing, Who Inherits Family Farm?

0102030405060708090

100

Inheritance - Legacy

WoodlandParcel

Farmland

Homestead to Spouse/Children

Inheritance - Legacy

Options for Estate Planning

Four methods to use to Plan an Estate:

DO NOTHING

Hold Title to your assets in Joint Tenancy

Create a Last Will and Testament

Establish a Revocable Living Trust

Underserved Farmers & RanchersProbate Court Cost

GROSS ESTATE SIZE PROBATE FEES

$ 100,000 $ 4,600

$ 200,000 $ 8,200

$ 300,000 $ 11,800

$ 400,000 $ 15,400

$ 500,000 $ 19,000

$ 600,000 $ 22,600

$ 700,000 $ 26,200

$ 800,000 $ 29,800

$ 900,000 $ 33,000

$ 1,000,000 $ 37,000

$ 2,000,000 $ 73,000

$ 3,000,000 $ 109,000

Estate Shrinkage of Famous PeopleWho Failed to Plan

Name Gross Estate

Total Settlement

Net Estate

Percent Shrinkag

e

Franklin D. Roosevelt $ 1,940,099 $ 574,867 $ 1,366,132 30%

Humphrey Bogart $ 910,146 $ 274,234 $ 635,912 30%

Clark Gable $ 2,806,526 $ 1,101,038 $ 1,705,488 30%

Dean Witter $ 7,451,055 $ 1,830,717 $ 5,620,338 25%

Walt Disney $ 23,004,851 $ 6,811,943 $ 16,192,908 30%

Marilyn Monroe $ 819,176 $ 448,750 $ 370,426 55%

Elvis Presley $ 10,165,434 $ 7,374,635 $ 2,790,799 73%

J. P. Morgan $ 17,121,482 $ 11,893,691 $ 5,227,791 69%

John D. Rockefeller Sr.

$ 26,905,182 $ 17,124,988 $ 9,780,194 64%

Frederick Vanderbilt $ 76,838,530 $ 42,846,112 $ 33,992,418 56%

American Academy of Estate Planning Attorney’s website. www.aaepa.com

Anderson, R. and Hachfield, G. and Weness, E. (2003) Preparing to Transfer the Farm, University of Minnesota Extension.

Branan, A., An Introduction to Farm Transition Planning: North Carolina’s Experience, presented at American Farmland Trust Conference, November 2006.

Down, Attorney Thomas P., Living Trust: Maryland Living Trust Seminar presented at Senior Estate Planning Workshop, June 1998.

Cosgrove, G., Conservation Options in Farm Estate Planning, presented at American Farmland Trust Conference, November 2006.

Culbertson, H. (2001) Conflict Management Strategies and Styles, Southern Nazarene University

DeVaney, S. (2003) Who Gets Grandpa’s Farm?, Purdue University Cooperative Extension Service

Hamrick, Karen (ed.). Rural America at a Glance, RDRR-94-1, Economic Research Service, U.S. Department of Agriculture, September 2002.

McGranahan, David. "Rural Population Loss in the 1990s," Rural America, Vol. 17, No. 4, Winter 2003.

Martin, D., Forte, R., Lippincott, W., Barkley, T., Managing Farm Assets for Your Future and Future Generations, Presented by University of Maryland Cooperative Extension, Baltimore County, March 2006.

O’Neil-Haight, M., The Basics of Estate and Succession Planning for Farm Families, presented at American Farmland Trust Conference, November 2006.

Stum, M. (2000) Who Gets Grandma’s Yellow Pie Plate?, University of Minnesota Cooperative Extension Service

Treem, T., Communicating with Family Members, presented at Estate Planning workshops, September, 2004

REFERENCES

Estate Planning Websites

American Academy of Estate Planning Attorney’s www.aaepa.com

Trust and Estate Planning www.trustandestates.com

Rural America www.ers.usda.gov/

Please Complete Evaluation FormReturn to Presenter !!!

Contact Information Developed and Presented by:

Okarsamaa B. White, M.S., A.F.C.Extension Educator, Financial Management

Family and Consumer SciencesPrince George’s and Charles Counties

(301) 868-9410 (301) 753-8195obwhite@umd.edu

REMEMBER COMMUNICATION IS KEY TO ESTATE PLANNING!

“It is the policy of the University of Maryland, Agricultural Experiment Station and Maryland Cooperative Extension, that no person shall be subjected to discrimination on the grounds of race, color, gender, religion, national origin, sexual orientation, age, marital or parental status, or disability.”

Special Thanks!!!

Maryland Cooperative Extension Staffs- Lori Sebastian, Administrative Asst.- Donna Mohler, Administrative Asst.- Crystal Terhune, FCS, Educator

- Julie Judy, FCS Faculty Ext. Asst.

Raising Kids, Eating Right, Spending Smart, Living Well!