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Securing Farm Transitions: Legal Insights for Succession Planning

Discover the essential elements, tools, and barriers impacting farm transitions, estate planning, and ownership structures. Explore tax policies, challenges faced by aging farmers, and the importance of legacy preservation in family businesses.

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Securing Farm Transitions: Legal Insights for Succession Planning

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  1. Legal Issues Affecting Farm TransitionsIFMAPS In-service training - April 26, 2013

  2. Outline • Elements • Tools • Barriers • Conclusions

  3. Why should I care? Founding Generation 30% Second Generation 12% Third Generation 3% Fourth Generation

  4. Iowa Farmland Ownership by AgeSource: Iowa State University Extension (Duffy and Smith, 2008) 55%

  5. Challenges for the Aging Farm Owner

  6. Perspectives for the closely-held farm business Family Business Legacy Assets

  7. Why should I care?

  8. Why should I care? 3x to 4x Poverty rate of widows compared to same-age married women

  9. Why should I care? 55% Percentage of U.S. adults with no estate plan in place

  10. Elements of Transition Founder Successor

  11. Elements of Transition Founder On-farm heir Off-farm heir Separate Entity Unrelated Successor Ownership Control Liquidation / Dissolution Participation

  12. Elements of Transition Founder On-farm heir Off-farm heir Separate Entity Unrelated Successor Ownership Control Liquidation / Dissolution Participation

  13. Elements of Transition Founder On-farm heir Off-farm heir Separate Entity Unrelated Successor Ownership Control Liquidation / Dissolution Participation

  14. Estate Tools

  15. Estate Tools - Others

  16. Ownership Tools

  17. Business Entities

  18. Business Entities

  19. Transactional Tools

  20. Barriers – Tax Policy

  21. The State of the Federal Estate Tax • 2013 estate tax credit: • $5,250,000 per individual with annual inflation adjustment • $10,500,000 effective credit per couple • 40% maximum rate

  22. “Spousal Portability” • Surviving spouse gets unused portion of first decedent’s credit • Carter and Barbara: husband and wife • Carter dies, uses $3 million of his credit • Barbara’s estate can pass $7.5 million (her $5.25 million credit + Carter’s unused $2.25 million credit) estate tax-free.

  23. Barriers to Implementation • Communication • Equitable considerations • Farm kid / city kid • Sweat equity • Willingness to transfer

  24. Perspectives for the closely-held farm business Family Business Legacy Assets

  25. Conclusions • Producers, we can transfer it. We have the technology. • Do producers and professionals understand the tools and their impacts? • Are producers willing to engage in true transitions?

  26. THANKS! Dr. Shannon L. Ferrell OSU Department of Agricultural Economics shannon.l.ferrell@okstate.edu

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