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Brown: LLCs work best for estate transfer

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Last Updated on Saturday, 21 January 2012 11:55
Written by Christy Martinez
According to Laramie attorney Kermit Brown, many who are involved in agriculture in Wyoming have an estate before they are even conceived, and thus the importance of sound estate planning.
    “I leave my ranch to my grandchildren, who aren’t even here yet, and they’ll have it clear through childhood and adulthood and through their declining years, and that estate exists after they die, until it’s settled,” says Brown, giving an example. “The timeline of an estate begins before you’re conceived and ends after you’re dead.”
    “What you’re trying to do with estate planning is work your way down through the generations, and if you do it correctly in Wyoming you can form a trust that lasts 1,000 years,” he says. “It’s like a river that flows along, and you’re just one part of it.”
Tax code influences property transfer
    Speaking on how to move things from generation to generation, Brown says the instruments and legal problems are largely a function of the federal tax code. As part of that, Brown lists the Applicable Exclusion Amount, or AEA, which is currently at $5 million per person that can be passed on tax-free.
    “Another aspect in the AEA is a concept called portability, which came in the last tax code and says that a husband and wife can pass $10 million in assets together. The first to die can leave all their assets to the survivor in a tax-free exchange, and they can also leave their $5 million exclusion to the survivor,” he explains.
    In addition to the AEA, a property owner can also utilize the annual gift limit of $13,000 per year.
    “If you do that with a spouse in a split gift, you can give $26,000 per year, per donee. If you have five kids and split gifting, you can give away five times $26,000 per year, or $130,000 per year,” explains Brown. “You can start chewing a hole at that rate, and that’s the one thing that’s really important – you can’t get time back. Time is your friend in this thing, and the less time we have, the less flexibility we have.”
    Brown says that, if a family wants to skip a generation and gift to the grandchildren instead of children, there’s a $1 million exemption, but after that there’s a healthy tax on generation-skipping transfers of property.
$5M exclusion could
disappear
    He also explains that the U.S. tax situation will be good until Dec. 31, 2012, but he predicts that if Congress does nothing, late 2012 will be frantic.
    “The dilemma will be this – we’re sitting in December 2012, and Congress is doing what they do best – nothing,” he says. “The $5 million exclusion will expire at the end of 2012, so the dilemma is whether to make a gift now and move the assets, or take the chance that Congress will do the right thing.”
    “There will be a lot of concern, and some will make the gift and get the assets moved right away, while others will say they think Congress will do something, and they’ll take the chance,” he adds.
Corporations no longer recommended
    The family planning tools that are available for property transfer are family limited partnerships, a limited partnership, a family limited liability company, corporations and partnerships.
    “We used to put ranches in corporations, and that became a big disadvantage when the IRS repealed a section of the code and said you can’t get out of a corporation tax-free anymore,” states Brown. “If the ranch is worth $100,000 when you put it in, and a million when you take it out, you have to pay tax on the $900,000 of gain to get it out of the corporation.”
    “If anyone has a ranch left in a C corporation and hasn’t done anything about it, you need to, because they’re a bad deal. They were done for a good purpose, but then the IRS changed the rules,” says Brown, adding that the options are limited, but C corporations can be converted to S corporations, but it takes 10 years to do it.
    “C corporations are double taxation – the corporation pays a 35 percent tax on the money it makes, and then to get the money out in a dividend you have to pay personal income tax on the dividend again,” he explains.
LLCs have least tax
consequences
    Although S corporations are an option for C corporations, Brown says the best thing in Wyoming today is a family limited liability company.
    “Most elect to be taxed as a partnership, and you can put things in, take them out, form and dissolve with no tax consequences,” he says. “The land is deeded into the company, and you can give out shares in the company. I do them with units of interest and treat them just like a corporation.”
    Brown, who is also a Wyoming State Representative, says that the Wyoming Legislature just finished recodifying the law on limited liability companies in Wyoming.
    “We have one of the greatest LLC statutes in the U.S., and when we did it we talked a lot about estate planning,” he notes.
    Of partnerships or LLCs, Brown says that when the gifts are made control can still be retained by the older generation.
    “The children are minority interests and get discounts, and you can move a lot of property that way and still not lose control of the company, but you still have to have a succession plan for the end,” he continues, adding that the children can still be confident, knowing that their stake in the ownership is building up.
Create two LLCs for an operation
    “What I really like to do with a lot of ranches is create two LLCs – one that owns the real estate only, including the mineral rights and the rights to mineral royalties, and another that is the operating entity, with things like the cows, machinery, checking account, brands and horses.”
    He says in that situation he sets up a 99-year lease between the land company and the operating company, and the gifting takes place on the land side, with share and share alike and the kids getting an even interest.
    “The operating entity involves those who want to be involved in the ranch, and they get the cows and machinery but not more than their fair share of the land. Their wages convert back to equity in the operating company,” says Brown.
    Brown says that he likes the fact that the land company returns something to the kids, but the bad part about that is that the kids have to show it on their financial statements, which can influence things like college scholarships.
    In conclusion, Brown says, “Most of the time we want to get the family assets into some kind of an organization, and an LLC is the best but a limited partnership is almost as good. Once you get them in a family business organization, then you can devise fractional interest to different people and leave the title to the land and the assets to the operating entity.”
    Kermit Brown presented his information to the Wyoming Stock Growers Association Estate Planning Seminar in December 2011. Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .
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Capitalizing on calves: Management, or lack of it, will impact your operation’s profit in 2012

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Last Updated on Saturday, 18 February 2012 11:56
Written by Christy Martinez
As spring approaches and cattle of all classes and weights continue to push markets higher, most producers are beginning to plan for their 2012 calf crop, and the stakes have risen for this year’s calves.
    “In the current situation, the cow/calf producer is the one likely to benefit the most from the ‘bull run,’ and it’s as important as ever to compare the value of your calf relative to your situation’s ability to put more pounds on,” says Kansas State University Livestock and Meat Marketing Specialist Glynn Tonsor.
    “Things like breeding performance and weaning performance are all more important today, because everything you sell has more value, and everything you fail to manage well costs you more money,” states Tonsor. “Not cutting corners is even more important than it used to be.”
Heifers gain attention
    In addition to watching management decisions within a beef herd, UW Extension Beef Specialist Steve Paisley says the 2012 market provides a huge opportunity for heifers even more so than steers.
    “Even commercial heifers have a real opportunity to be marketed as replacement or bred heifers,” says Paisley.
    Kit West of Heifer.Pro near Wheatland says he has seen fewer replacement heifers offered for sale.
    “Some larger ranches are starting to retain a few more heifers, and there aren’t as many quality replacement heifers coming to the sale barns,” says West. “I think many of those ranches are keeping heifers back to invest in their own herds, or they’re using them for another cash flow and are selling them as bred heifers in the fall.”
   Of today’s prices for replacement heifers, West says there are still deals to be found.
      “Different enterprises have different cash flows, and some can afford to pay the higher price for $1,900 to $2,000 heifers, but if you try hard you can find heifers for $1,600 to $1,700 that are good quality,” he explains.
    West specializes in purchasing replacement heifers, growing them through the summer on grass and selling them in the fall as replacements. He also offers heifer development services for producer-owned heifers.
Add weight to commercial calves
    On the steer side, Paisley says producers should seek after any way they can add additional weight before the animals are marketed.
    “It’s unusual, but right now we’re getting the same price per pound, whether the animals weight 500 or 800 pounds,” he says, adding that strategic supplementation could be used with stocker cattle or for weaned calves in late summer.
    “The value of those pounds added is higher than it’s ever been, so unless the cost of providing it has gone up, it makes sense to keep or start supplementation,” says Tonsor.
Consider implants, health programs
    Although natural programs have been encouraged lately, Paisley says producers should consider growth implants.
    “Many people have stopped thinking about implants, but they’re a way to add more weight,” he notes.
    “The other thing to think about is that, when calves get extremely expensive like they are now, many feedlots look closely at health and backgrounding programs, because the animals are worth so much more and they can’t afford to lose as many,” says Paisley.
Risk in retaining calves
    Paisley recommends that producers consider retained ownership on a portion of their calves, but he cautions that, while cattle markets are high, no one has a good feel for where corn and grain prices will go.
    “From a risk standpoint, there are some opportunities because the cattle price will stay high at the very least, or trend upward, but with the amount of risk in feed prices I would worry about retaining ownership on all of my calves,” he says.
    Tonsor adds that there is value in market timing, and holding off from selling in the midst of the “calf run” in the fall.
    “There tends to be some value in holding off on marketing your calves, so producers need to push the pencil to see if it makes more sense for them to sell at weaning or maintain ownership a little longer,” he notes.
Forage access a must
    Because forage production is better north of Interstate 80 right now than in the south, Tonsor predicts there will be more growth in the cattle herd in the northern U.S. first. He says that public lands grazing will be a critical factor in that growth, and that producers should do as much as they can to ensure continued access to grazing leases.
    “The details and the duration of producers’ access will be critical for them to maintain a comparative advantage relative to other places,” says Tonsor. “Making sure you have the access to forage locked up is pretty important.
Market implications
    “We are at a tipping point,” says West of the cattle market. “I think prices have gone so high that I don’t see them getting any higher. We could possibly plateau, which would be great, but prices are so high right now that they can’t get much higher without causing more issues in the retail beef market. If any wrinkle happens across the globe and commodities prices drop, a drop in the beef market could happen rapidly. I think it will either plateau or fall off, but I can’t see how we’ll sustain any prices higher than this.”
    Regardless of future markets, Tonsor says, “The cost of lax management or no management is higher today than it’s ever been, because of the money left on the table. The inability to manage feed waste is a bigger deal today than it used to be.”
    Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

Consider feed supplements to add value
    “The most effective way to get premium pounds on a calf is with a concentrated creep feed, which is an accepted method for a lot of producers,” says Ranch-Way Feeds Wyoming Territory Manager Jack Settlemire of adding pounds and value to calves in the 2012 cattle market.
    “An initial creep feeding program would be best once those calves get old enough to utilize the grass and creep feed at around 200 or 250 pounds,” says Settlemire, adding a note of caution regarding creep feed and replacement heifers because of added weight, but he says most ranchers have been selling both heifers and steers.
    In addition to creep feed, Settlemire suggest GAINPRO Ruminant Mineral, a free-choice medicated mineral designed for pasture cattle, including slaughter, stocker and feeder cattle.
    “I’ve used GAINPRO extensively on backgrounding cattle – both yearlings and calves – and it provides a better utilization of forage and is a universal product available through any feed dealer,” he says. “It has an affinity to use high-fiber diets much more efficiently than Rumensin or Bovatec.”
    “Whether creep feeding, backgrounding or in the feedyard, the pounds put on are costing less than the dollars per pound at the time of sale, and supplementing is still an effective way to add value to your calves,” says Settlemire.








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Improving technology allows agriculture to meet growing demands

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Last Updated on Saturday, 25 February 2012 10:16
Written by Saige Albert
Denver, Colo. – “We can feed multitudes with less land and less water. We can produce floods of milk with fewer cows, and millions of pounds of beef with less feed,” said Keith Belk of Colorado State University. “Technology is vital when it comes to producing more with less, or producing food at all.”
    Belk, along with Rod Bowling of AgriFood Solutions International and Travis Choat of Elanco, looked at what technologies are important to increase production to feed the growing world population at a presentation during the International Livestock Congress on Jan. 10 in Denver, Colo.
    According to Choat, it will be necessary to produce 100 percent more food by the year 2050, and 70 percent of that has to come from technology. The World Health Organization defines “technology” as practices, products and genetics, he added, noting that improvements must be made to accommodate high beef demand.
Capital management
    Choat pinpointed both markets and capital as the drivers of short-term behaviors in ag business.  
    “The way people manage their businesses will ultimately define whether they can produce more beef,” said Choat, highlighting consumer demand and the ability to help feed the world as the primary motivators behind increasing production capability.
    He emphasized that the availability and management of capital defines the ability of producers to operate, and both feed efficiency and animal health management are important to utilizing capitol more effectively.
    “One percent feed efficiency equals about five dollars per head in the feed yard,” commented Choat, “but it’s also about the output.”
    From 2005 to 2010, Choat cited statistics that say that operating a 40,000-head feed yard cost about $45 million per year, and that is expected to increase to $64 million in 2012, making capital management very important.
    Choat also noted that producers seem to be doing a relatively good job overall for hitting optimal target weights for profitability, according to data analysis by Daryl Tatum of Colorado State University.
Products
    “There are lots of things that tie into both practices and products,” noted Choat, identifying implants, ionophores and beta-agonists as the top three products that improve production potential.
    “They improve productivity, and they are a profitable technology for producers to use,” explained Choat.
    He added that it is possible to manage for an optimal end product using the implants, particularly.
    “We have studied implants for the long term,” said Choat. “They impact the end product, and they are a profitable technology for customers to use.”
    Choat also identified beta-agonists, though they’re a subject of criticism in the global marketplace, as being useful in producing quality beef.
    “We believe that we have the markets to support use of beta-agonists,” he said. “Export demand is as good as it has ever been, and close to 60 percent of cattle are getting a beta agonist.”
    He emphasized, however, that every operation is unique, and individual producers see varying dynamics on their ranches that can be managed differently.
    Bowling also commented, “If you use beta agonists in good, strong, medium-framed cattle, we see very predictable responses.”
    When utilized in other groups, such as very young cattle or young bulls – what Bowling described as “rough cattle” – responses are more erratic.
    “I don’t think the product was designed for use in those groups,” he said. “If producers are going to use the technology, they have a responsibility to manage it and don’t abuse it.”
    Choat also added that beta-agonists can be managed to maintain productivity and manage meat tenderness and quality.
    “I think if we’re not careful with beta-agonists we could easily push China, Korea and Japan into some of the hormone trade barriers like we have with the Europeans,” added Bowling. “That would be unfortunate, and we’ll have to be very careful.”
Protectionist attitudes?
    “We need to abandon the protectionist part of out thinking,” said Bowling. “Let’s promote U.S. beef and feed the world.”
    Bowling noted that in promoting American beef, exporting not only food products, but also live animals, is important, saying that some countries, such as Kazakhstan and Russia, are taking advantage of U.S. genetics.
    “The Kazakhstani government came to the U.S. and wanted to pick cattle that were environmentally capable of producing in their cold climate,” explained Bowling. “They contracted 10,000 bred Angus heifers and 10,000 bred Hereford heifers, and they are relying on a lot of resources to do that.”
     He noted that the freight cost for flying cattle to countries around the world is over $3,700 per head, and governments are footing these costs to increase cattle herds.
    Also, as the Choice-Select spread continues to increase, Bowling argued that the demand for premium genetics continues to increase, meaning that countries will continue to spend the money to acquire high-quality cattle.
    Ultimately, to meet consumer beef demand and demand for premium cattle genetics, both Choat and Bowling agreed utilizing and appropriately managing new technology is essential, and continuing to develop new products and practices will aid in meeting those needs
    “Over time, we want to make sure that if we don’t have all the answers, at least we have the right questions,” added Choat. “It is a very complex topic.”
    Saige Albert is editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .
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Family farms: Family ag tackles industry challenges

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Last Updated on Saturday, 04 February 2012 13:25
Written by Saige Albert
Powell – The family farm is an integral part of rural America, and Center for Rural Affairs Executive Director Chuck Hasselbrook says family agriculture is essential to keep rural America strong.
    Hasselbrook opened Northwest College’s Spring Roundup on Jan. 19 by explaining why family farm agriculture is important to rural America, as well as what producers can do to strengthen family farms and redirect public policy to build rural America.
    “We are headed to a state where communities surrounded by farms and ranches will be operated by a few elite, with a majority of poor laborers and virtually no middle class. That is not progress, that is social decay,” said Hasselbrook, “and it is being helped along by misguided public policy that focuses on subsidizing the rich and powerful and failing to invest in creating a future for rural America.”
Longevity of the family farm
    Investing in strategies that enable family operations not only to survive, but also to thrive, is very important to bring in more generations. The longevity of family farms begins with efficient production.
    “It is absolutely critical to control and manage costs in agriculture,” Hasselbrook explained. “Competition is intense, so most people are trying to become low-cost producers.”
    By adding value to operations or adding an enterprise to production, producers can increase the end value of a product and increase their profit margin, noted Hasselbrook.
Value–added
    “Producers can add more value to what they produce by offering something different that appeals to a particular segment of the market – something that makes the product worth more than regular beef,” he said.
    However, value–added products have a caveat, Hasselbrook added.
    “If you are going to start with a unique product, it has to be something that is harder to do and requires more effort and skill,” he explained, adding that if it was easy, everyone would produce the value– added products.
    “Producers must find their comparative advantage for their operations in agriculture to put themselves in the position to weather the storms,” said Hasselbrook. “They need to look at what they can do at least as well as their competitors.”
    Value–added products, such as natural beef, provide opportunities for ranchers to get involved and produce a unique product.
    “Country Natural Beef, for example, is a very innovative cooperative that has spread throughout the Midwest,” said Hasselbrook. “They identified a niche in the market and figured out that there is a group of consumers willing to pay a premium for beef produced in a traditional way on a family operation.”
    Hasselbrook noted that the operation also learned how to work together to market their product on a larger marketplace.
    To isolate potential branches of the market that may provide profits, Hasselbrook said, “By doing a market analysis, you can get an idea of what to go with and start putting together a business plan.”
    USDA offers value-added producer grants that are an option to provide funding for some endeavors, said Hasselbrook, adding, “Producers must be willing to put some of their own skin in the game.”
Risk management in
diversification
    He also added that diversification by adding an enterprise can mitigate potential risks, and that there are several different ways to diversify an operation.
    “The key is to not avoid risk, but to manage risk,” said Hasselbrook. “For family operations, often times that involves using skills, management and judgment of the farm.”
    Operations that have diversified to manage risk have succeeded by taking advantage of resources such as wildlife and waterways on their property.
    “One ranch in the Nebraska Sandhills has a loop river that runs through the operation, so they have a canoeing and floating operation. They have a lot of deer, so their son guides hunters from the cities,” explained Hasselbrook. “Their most profitable enterprise is bird watchers. They bring in high-dollar bird watchers from the city to watch prairie chickens mate.”
    Hasselbrook continues that management goals involve managing grass for both the wildlife and cattle, but diversifying the operation has allowed it to support three families, as opposed to only one.
    “They were adding an enterprise and continuing to farm and ranch, but they were diversifying their income,” explained Hasselbrook. “The were managing their risk so they have something to fall back on.”
Using technology
    Hasselbrook also said the Internet is a game-changer for marketing opportunities.
    “It wasn’t that long ago that business owners had a customer base of just the locals,” said Hasselbrook. “Today, I could operate a business in Lyons, Neb. and my market is the world.”
    Internet use on the ranch can be useful beyond reaching a larger customer base, as well, and Hasselbrook said options to add other enterprises to a ranching operation could include running another business online.
    “We have businesses running all over the country from small towns that are making it work,” said Hasselbrook. “Producers may have a college degree in something other than agriculture, and they can utilize that by running a business right off the ranch to provide accounting or marketing or payroll services to companies in larger cities.”
Washington, D.C. and
family farms
    Because public policies have such a large impact on family farms, Hasselbrook said that it is also important for producers to stay on top of elected officials.
    “Washington isn’t inherently corrupt, but when we send people to Washington, if we don’t remind them where they came from and why we sent them, they have a tendency to forget,” he explained. “Our job is to stay in touch with them and tell them what their job is.”
    The threats to small family farms in rural America come from an increase in large operations, and the public policies that subsidize wealthy operations are ever-present, but with the same perseverance, courage and willingness to make sacrifices as those who pioneered farming and ranching communities across the country, Hasselbrook said, “We can rebuild family agriculture and we can re-pioneer rural America.”
    Saige Albert is editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .
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Internet tool connects landowners with land seekers for leasing options

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Last Updated on Saturday, 17 March 2012 13:57
Written by Christy Martinez
Editor’s note: As this paper went to press, we learned pasturescout.com is having technical difficulties. Please check back with the site in the weeks to come as they work through the challenges.
    A new tool for livestock producers who are either in need of pasture or have pasture available was launched on Feb. 1.
    “It’s pasture leasing made simple, a concept stemming from the worst drought in the history of Texas and declining cow numbers,” says PastureScout co-founder Jen Livsey.
    The new website, pasturescout.com, connects a rancher in need of grass to a landowner who has grass available for lease.
    “PastureScout provides leasing information in one easily accessible place,” says Livsey.
Developing a concept
    Livsey is a fifth-generation rancher from eastern Colorado, where she works on her family’s commercial cow/calf operation, and she says there were two reasons why she started working on PastureScout.
    “The idea originated with my business partner Ryan Rhoades,” says Livsey.
    “The continual decline in cow numbers is a major industry challenge,” says Rhoades, a professor at the King Ranch Institute for Ranch Management. “Without grazing pasture, cattlemen have been forced to sell their cattle. When the drought does end, cattle prices will likely be high, making it difficult for those ranchers to get back in the business.”
    Rhoades realizes that, in the past, connections between ranchers in times of drought have been difficult to make.
    “Somewhere in the country there is always a drought. At the same time, somewhere else in the country there is too much rain,” he says. “Those two people have never been able to connect to each other.”
Broadening networks
    Following her conversation with Rhoades, Livsey says she was speaking with her dad about shipping their cattle herd to cornstalks for the winter, because of being droughted out in their area.
    “We live 60 miles from the Kansas border, but it took him 100 phone calls and a month to find a lease,” she explains. “I thought, ‘That’s absurd. We have internet. It shouldn’t be that hard.’”
    Connections to an agricultural bank in south Texas also served as inspiration for Livsey.
    “I sell drought insurance in the Rocky Mountain region, and in the course of a week I had three large-scale ranchers contact me, asking if I knew of any pasture. These were well-connected individuals in Texas, but they were looking for someone who might have contacts somewhere else,” she says. “When a drought has affected such a huge portion of the U.S., regional networks don’t serve as well. Then people need to know someone in Wyoming or Nebraska.”
Building a network
    Following those experiences, Livsey says she got together with Rhoades to look further into the concept, and they started pulling together the business plan in November 2011. PastureScout started with the idea of finding grazing pasture for cattle, but the website can also be used as a network to expand an operation or to find grazing leases for other livestock such as goats, sheep, or horses, says Rhoades.
How it works
    Although the site went live Feb. 1, Livsey says searches aren’t yet available, because the network is awaiting enough listings for pasture seekers to have a successful search.
    “There are a couple key things about the site,” says Livsey. “If you register as a land seeker, you can look at the properties for free, and if you register as a landowner it’s $10 per month to list.”
    The site also has the capability to host a bidding process, which gives landowners the option to put their lease up for auction.
    “With the very great demand right now, there is a good chance that people are undervaluing their leases, so the auction helps individuals realize the market value of their property,” states Livsey. “The landowner has the choice to set a price or open it up for bids.”
    “For a landowner, they get wide exposure and the ability to realize the market value,” she adds.
    For the land seekers, Livsey says the site provides convenience, and customizable searches for a specific number of cattle during certain months in certain states.
Industry sustainability
    Livsey and Rhoades continue to build the site, and they encourage landowners to check it out.
    “It has to do with the sustainability of the industry because it helps the people in the industry,” says Livsey.
    “There are large numbers of ranchers in the southern latitudes who are willing to go to Wyoming to find land,” she says. “This is a convenient and efficient system for people in Wyoming, with any pasture size.”
    The PastureScout team also hopes the website will be a way to bridge the generation gap between ranchers ready to retire and young people eager to enter the industry.
    “At a time when buying land may be out of reach as a young adult, leasing pasture is a viable option,” says Rhoades.
    For more information, visit pasturescout.com, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 979-314-1384. Christy Martinez is managing editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .
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