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Legal Issues Affecting Farm Transitions IFMAPS In-service training - April 26, 2013

Legal Issues Affecting Farm Transitions IFMAPS In-service training - April 26, 2013. Outline. Elements Tools Barriers Conclusions. Why should I care?. Founding Generation. 30%. Second Generation. 12%. Third Generation. 3%. Fourth Generation.

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Legal Issues Affecting Farm Transitions IFMAPS In-service training - April 26, 2013

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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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