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Last Updated on Thursday, 27 August 2009 07:59

Written by Christy Hemken

Sheridan – At the early June gathering of the Federal Reserve Bank of Kansas City in Sheridan a public luncheon was held, featuring Bank President Thomas Hoenig’s opinions on the current state and future outlook of the U.S. economy.
    Federal Reserve Bank board member John Pearson of Buffalo, who represents Wyoming’s interests along with Chuck Brown of Wheatland, said most of his comments and observations deal with the three economic drivers in Wyoming: tourism, agriculture and energy.
    “One of the most important resources for the Federal Reserve’s responsibilities is the real knowledge gained from business and community leaders serving on the bank boards,” said Pearson. “We can provide insight on current and emerging issues on the local, state and national level.”
    He said the last few years his reports have concentrated on energy because of its impact on the state and its revenue generation.
    Brown introduced Hoenig, saying, “Wyoming people have a reputation of looking you right in the eye and getting right to the point and telling it like it is. I think Tom is one of the most experienced and seasoned central bankers in the United States today.”
    “In the long run, we’re all dead, but our children pick up the price tag,” said Hoenig in the introduction to his speech.
    Of the 12 regional institutions throughout the country, Hoenig said, “Each branch brings a unique perspective from our regions to the national policy deliberation process, and it’s extremely important that we come out into the region and visit areas like Sheridan and talk with business and community leaders about things like energy and agriculture so we can compare it to other parts of our region and contribute to national policy.”
    “When I look at the economy today, I expect we will recover from this recession as soon as the second half of this year, but more likely into 2010,” he predicted. “We have in this country very accommodative and expansionary policies to ensure we recover from this recession.”
    He said an interest rate near zero is by itself a strong force to bring the country out of recession. “In addition, we have engaged in providing direct lending to the financial system in the form of loans and we’ve committed to purchase as much as a $1.25 trillion in mortgage-backed securities and $300 billion in other securities, which provides an enormous amount of liquidity in the economy and is a strong stimulus.”
    “Frankly, it would be surprising if the economy failed to recover based on the magnitude of these monetary and fiscal programs,” he stated, but cautioned, “Despite these actions, I expect the recovery to be more modest than some economists project.”
    As the country moves forward, Hoenig said it’s important to look forward and address fundamental weaknesses. “Over the last decade we in this country have provided conditions to create economic imbalances that need to be rebalanced,” he said. “How we do that affects the inflationary outlook that’s not immediately an issue, but could be down the road.”
    Of talk about restructuring the regulatory system, Hoenig said that won’t correct this problem, giving the centralized supervisory structure of Great Britain as an example. “Their problems are as bad or worse than ours,” he said.
    “What was allowed to take place in the U.S. was the suspension of important financial standards that over the decades we’ve found to be successful in constraining our excess,” he explained. “We used to have very clear guides, like the requirement of capital to expand, and that constrained reckless growth. We allowed those to fall away, which was a prescription for problems.”
    “If we’re going to look at this issue in the future we need to address that and bring the fundamentals back and enforce them,” said Hoenig, adding the guidelines need to be broad-based, counter-cyclical, useful, simple to understand, measurable and enforceable. “That’s the key to good standards.”
    He said the subsidization of failed institutions in the banking industry undermines capitalism and the cycle of success, failure and renewal. “The ability to renew is what makes this country strong,” he said. “We need to rebuild and strengthen our financial system and the discipline around it if we’re to have a sustainable, successful credit environment in the U.S.”
    He said another aspect of today’s situation is that the consumer has changed in terms of consumption relative to national income. “In 1990 our consumption was 65 percent of the gross domestic product, but today we’re over 75 percent. The savings rate used to be above eight percent, but in 1990 it was five percent and in 2006 it was zero. Consumer debt has increased from 85 percent to 135 percent.”
    He said people in the U.S. have changed their habits toward consumption. “When we go back to exports and imports, it’s clear we’re importing consumptive goods. We had to borrow to immediately improve our standard of living.”
    “In some ways the U.S. is such a large and important economy that we can continue these imbalances for some time, but not forever,” continued Hoenig. “They have to be corrected as we move forward in the national economy. We will have some adjustments in consumption, savings habits and where our goods are produced. It won’t happen quickly, but it has to be done and incentives have to be put in place for us to move in that direction.”
    Hoenig said if the savings rate in the U.S. was to rise on a sustained basis of five percent it would require between now and 2013 a consumption growth less than 1.5 percent per year. “That’s the lowest it would be since 1930s, so you begin to see the implications on consumers and on how we allocate our spending and how we incent savings.”
    He pointed out that another reason the economy’s recovery will be more slow than some would like is because, among other things, interest rates near zero will have to come up. “Those rates have to increase as recovery starts because we can’t get too far behind the curve. As the economy adjusts from consumption-oriented to more balanced, it’ll need real interest rates to bring the savings rate up.”
    He said that suppressed interest rates will cause inflation to rise, which the Central Bank needs to resist. “In my experience, inflation is, in fact, the most regressive, unfair tax we pay. We’re earning dollars and paying back in depleted value. That’s why it’s a tax that’s unfair and very aggressive and it affects the least of us.”
    “That’s the outlook that we can address if we choose to, but we can’t just sit back and let things happen,” stated Hoenig. “For me, and the Central Bank, it’ll do the greatest good over the longest time if it stays true to its mission, which is to provide for a currency that holds its value over time so businesses can make transactions with certainty.
    “The outlook is of hope, but not guaranteed.”
    Christy Hemken is assistant 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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Last Updated on Friday, 05 November 2010 15:03

Written by Christy Martinez

“You need good information to make good choices, particularly in estate planning. You need to understand the advantages and disadvantages of all the techniques and tools to design the plan that will meet the objective you have,” says Rock Springs attorney Galen West.
In light of the uncertainty surrounding the estate tax and the inaction of Congress to let people know either way, West says it’s important to understand how to maximize an estate.
“In the planning objectives on farms and ranches, reducing the estate tax is important. Land values tend to accrue over time, while ranching does not produce any more income. There’s a desire to pass on the ranch to heirs, particularly those who wish to continue ranching, at the lowest taxes,” says West.
“It’s difficult to talk about the estate tax in 2010, because it’s in limbo. In 2011, if Congress does not act, we’ll have a $1 million exemption on the estate tax. We don’t know if they’ll retroactively impose that tax on 2010,” explains West. “That means I can pass $1 million to whoever I want tax-free, and my spouse also has a $1 million exemption.”
However, he says those two opportunities to exempt $1 million are a use-it-or-lose-it scenario. “If I die first, and I don’t design my planning to use my exemption, that coupon is at the bottom of the garbage and there will be $1 million only. It requires proactive action to ensure you’ll double that exemption.”
“There are common planning objectives applicable to all of us, and there are specific planning objectives that apply in certain situations, including ranching,” says West. “One generally accepted definition of estate planning is to control the property while alive and well, while planning for you and your loved ones should you be mentally incapacitated and, upon death, give what you have when you want, the way you want and to whom you want.”
“Another objective of estate planning is to do all of it at the lowest possible taxes and other costs, including estate taxes, income taxes and legal and administrative fees. The planning objectives are designed to accomplish those costs as well,” he adds.
“Some techniques and tools are more effective than others, like assigning wills, but there are significant problems with each technique in meeting the estate planning definition – the control that will affect minimizing taxes and other considerations,” he comments.
West gives joint tenancy as an example. “The opportunity is created to omissions or unintended errors if circumstances don’t transpire as you assume they will – the wrong people die first, or people have disabilities. Those circumstances can create unintended tax consequences, and sometimes adverse tax consequences. While joint tenancy has a place in the planning pantheon, how it fits into what you want to accomplish has to be considered.”
“The same holds true with beneficiary designation,” continues West. “That won’t provide good asset protection for a spouse or minor, and can create omitted or unintended beneficiaries and unintended tax consequences. The control factor isn’t present, and there may be opportunity to not have things go to whom you want, when you want and how you want.”
West says wills also tend to be problematic. “You can design them for absolute control as to whom and when and how, but to meet that all your assets have to pass under the will, and be subject to probate and the fees and expenses and be public documents. There’s the loss of privacy and the third-party involvement, and that’s the price you pay for the control of a will.”
He also says a will cannot assist you if you become incapacitated. “One thing that can assist is power of attorney, but it’s difficult. Third parties often have trouble with powers of attorney, and it won’t be free of taxes.”
West offers a revocable living trust as an alternative to those planning techniques previously mentioned. “A fully funded revocable living trust is comprehensively drafted to address all these considerations,” he says. “It says who you want to receive, what and when, and the how and what protections are built in, as well as what tax savings you want to build, and all assets are transferred or payable to the trust. It can provide for disability, lifetime disability and tax savings.”
“A fully-funded living trust ensures long-term control over the assets. You set the rules of inheritance, guidelines for care and disability, and you can plan for a lot of situations,” says West. “You can plan for children with different needs, spouses and charitable contributions. It’s easily amendable and can be designed to maximize utilization of deductibles.”
“Beyond that, it’s a fully private document. The only people who have access are the beneficiaries of the trust and their advisors and the trustees,” he adds.
“A living trust can be designed so an irrevocable trust is in place for a beneficiary when they receive their inheritance, and you can provide them creditor protection,” says West. “You can plan to ensure the benefit and control, and have it on a long-term basis. Sometimes we have kids who need some self-protection with their lifestyle or habits that raise concern over proper management of their inheritance.”
For larger estates, a common technique to cover estate taxes is to create an irrevocable life insurance trust situation where insurance is acquired to pay the estate tax, says West. “The insurance is income tax-free, but it’s not estate tax-free. A portion of the insurance is subject to tax.”
Another challenge in estate planning on farms or ranches is equalized distribution, says West. “The ranch might be 70 or 80 percent of the total estate value, and how are things equalized among all the kids? Sometimes the ranch can’t take the capital debt to pay out to the other kids, and preserving liquidity or creating liquidity becomes an important planning objective in many ranch planning circumstances.”
One technique available to ag operations is a special use valuation applied to the Internal Revenue Code to appraise the ranch at ranch value, rather than at its highest and best use value. “There’s a limit on how much of a reduction in value you can get, and you have to meet some very stringent requirements on what percentage of the ranch is in the total estate, and have a qualified family member continue to ranch it for 10 years.”
Another Internal Revenue Code provision allows ranches to pay estate taxes over a 10-year period at low interest. However, West cautions many times the IRS will require a lien to allow that to occur, and if a ranch uses an operating line with a bank, that IRS lien will dam up those opportunities.
Ranch owners can also freeze the value of the ranch at its current value using lifetime gifts. “A lot of people have the ranch incorporated, and gradually the kids get a larger ownership of the ranch so the parents don’t own 100 percent at their death. The sooner that process gets started, the more opportunity there is to move the ranch away,” says West.
“People always want to strive for simplicity, but there are certain things that have a requirement for complexity,” says West of taking the time to understand and make an estate plan. “This is an area where there is some requirement to design what fits you. There’s not a one-size-fits-all solution, we’re all individuals with different circumstances in our families and different objectives. We need to meet the definition of controlling what we have, planning for incapacitation, directing what we want in and out and when, and in the process save as much as we can in taxes.”
Galen West presented estate planning information at the 2010 summer convention of the Wyoming Stock Growers Association in June. 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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Last Updated on Monday, 06 December 2010 08:25

Written by Christy Martinez

Of using conservation easements in conjunction with estate planning, Jackson attorney Tim Lindstrom says they work for certain people, but not for everybody.
“Conservation easements are a tool to ensure that your ranch remains available for ranching purposes in the future, for your family and for their children, and, presuming we’ll have an estate tax in 2011, it is one of the simplest and most straightforward ways to avoid tax that exists,” says Lindstrom.
“For ranchers, who have the majority of their assets tied up in land, which is not very liquid these days, the estate tax is like a train coming toward a thin brick wall – it’ll blow that ranch apart,” he adds.
Lindstrom reviews the estate tax situation, where in 2009 a $3.5 million exemption existed, and the first dollar over that was taxed at 45 percent. “Currently we have no estate tax, and in 2011, if Congress does nothing, the tax automatically reverts to 2000 levels, which was a $1 million exclusion and a 55 percent tax rate on the first dollar over $1 million,” he explains.
“Under the 2009 rules, in a simple estate plan a husband and wife could pass $7 million tax-free to their children. That covers a whole lot of territory, but not necessarily everybody, and in 2011, if we go back to 2000 rules, there are a whole lot of people who will be affected. If you want to keep your land in your family, and it is valuable to you, you need to start planning to deal with that,” he states.
According to Lindstrom, there are two benefits to including a conservation easement in an estate plan.
“If you make a contribution of an easement, or sell it for less than fair market value, or a bargain sale, you get a federal income tax deduction. Currently that deduction allows you to deduct the value of the easement against 30 percent of your adjusted gross income, and carry the balance for up to five years,” he says. “There is a provision pending in Congress that would reinstate the rule that existed in 2009. It allows everyone who donates a conservation easement to deduct the value against 50 percent of their adjusted gross income and carry the balance forward for 15 years. And, if more than 50 percent of their gross income is from the business of farming and ranching, they can write that deduction off against 100 percent of their income.”
He says that applies even if, the year after the donation, a person begins making all their money from stocks and bonds. “They still get to write off that deduction against 100 percent of their income,” he says.
Lindstrom says the second advantage to conservation easements is estate tax reduction.
“A conservation easement removes value from an estate. Easements are great, and the best tool for land preservation we’ve come up with, because they’re private, voluntary and non-regulatory,” he says, but adds, “From a tax standpoint, they work only in situations where the land placed in the easement has development potential. The value of the easement is a function of the highest and best use of the land. If your land has development potential and you don’t want to use it, and your children don’t want to use that potential, or you don’t want them to use that potential, you can remove it.”
Lindstrom says the amount of value removed from an estate is a function of how the easement is written. “If you don’t want to cash in on that value, eliminating it from your estate will generate tax benefits and get rid of an asset that will very likely force the sale of that land for estate tax,” he says.
“There are two tax benefits that result – the estate is reduced by the value of the easement, and the remaining value of the land is eligible for exclusion up to 40 percent of its value, which is currently capped at $500,000,” continues Lindstrom. “For a husband and wife, with a simple plan, that’s $1 million they can exclude. So, you remove the development value from your estate, and you get a 40 percent write-off with balance of the land’s value, up to $500,000.”
Lindstrom notes that one of the interesting provisions in the federal tax code allows a rancher’s children to retroactively take advantage of conservation easement estate tax benefits.
“If a rancher has not done anything, and the children are confronted with an estate that’s taxable, and land they don’t want to sell to pay estate taxes, they have nine months from the landowner’s death to contribute a conservatopm easement,” he explains. “And that easement has a retroactive affect on estate taxes. They can’t get the income tax deduction, but it is a way in which children can save the ranch if they act quickly after their parents’ death.”
He adds it’s not atypical to find a 60 percent reduction in the value of an estate with a conservation easement.
“Taking that value you don’t have a use for out of the estate allows all the other estate planning tools to work much better,” says Lindstrom.
Tim Lindstrom spoke at the summer convention of the Wyoming Stock Growers Association. 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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Last Updated on Friday, 11 February 2011 13:11

Written by Heather Hamilton

Casper – “Through estate planning you come to realize that stuff is stuff, and there are lots of ways to deal with it. The hard part is for the people dealing with the estate to decide how to split everything up. It’s easier to deal with the stuff, the hard part is how to split that stuff up,” explains Farm Bureau Financial Consultant Frank Kelly.
“I suggest determining goals, and when I sit down with a person for the first time, I sort out in my mind if they want a simple inheritance plan, or if we’ll deal with a legacy plan,” adds Kelly.
“We separate them for this reason – in my mind an inheritance plan is giving away something, like the liquid assets, and the business won’t go forward. It’s something along the line of saying, ‘Here’s X amount of dollars, hugs and kisses. Love, Mom and Dad. Spend it wisely,’ and almost every inheritance is spent within 18 months after it’s received, regardless of the amount,” explains Kelly.
“To me, the second type of inheritance, a legacy plan, means feeding the same cows the day after the funeral as the day before, just with less help. Legacy planning is keeping the business plan and moving it forward, assuming it is a viable business plan,” notes Kelly.
He adds that within legacy planning there are two separate conversations that occur simultaneously. One is a business conversation, and the other is the estate planning conversation.
“I can have a conversation with you about your business plan, and never mention estate planning. It’s an irrelevancy when discussing the business aspect. But, I can’t talk about your estate without talking about your business.
“If you and I aren’t partners, it’s really not my business how your estate is divided up. But if I’m in business with you, and there’s a son, or another business partner, I have every right, and need, to know what will happen to that business after death. If done correctly, the business and estate conversations can dovetail nicely together into one cohesive plan.
“For example, my brother and I have been partners for 30 years, and we both run very different businesses. I get along very well with my brother, and I get along very well with my brother’s wife, and he gets along very well with my wife. But, while I like my sister-in-law, I don’t want to be in business with her. I certainly don’t want to be in business with her next husband, if that should ever happen. Likewise, I really love my nieces and nephews, but I don’t want to deal with a 24-year-old man with a much different outlook on how things should go than I do, just because my brother happened to die.
“So we have a business plan that deals with the issues of what happens if one of us becomes disabled, or dies, or wants to retire. Those are all important issues I think need to be addressed in an estate plan.”
He explains that in Wyoming there are two basic ways to pass property from one person to another when someone passes away.
“The first is probate, and in Wyoming that consists of $750 plus two percent of the gross estate. To some people the big thing in estate planning is to avoid probate, which can be quite expensive, especially with large estates that aren’t difficult to deal with. But, at the same time, most of that expense is deserved if an attorney has to clean up your mess,” comments Kelly.
He says the second way to pass property is by operation of law.
“This supersedes probate, which is why it isn’t subject to probate. But, if you and your wife, or husband, have right of survivorship, it doesn’t matter what the will says. Nobody really cares because of the right of survivorship, and it will pass by operation of law regardless of the what the will says, unless it’s declined by the heir,” notes Kelly.
“At first death, everything goes to the survivor. Then say the second spouse dies. Now everything is subject to the will, and probate, because it was solely in their two names,” explains Kelly.
“So many times in estate planning I see a couple with three kids, and two are off the operation and one is still on it. At the end of the day, they want a will that says everyone gets an equal share, and while that certainly can be done on paper, it may not be equitable. Especially when one kid has been working on slave labor and sweat equity for the past 30 years of his life, and when he gets to the end where he’s going to be in charge, he suddenly learns he has to pay off two siblings who have been off doing different things.
“That becomes a very difficult issue, and a lot of people play things very close to the vest in regard to their estate plan, and I think that’s appropriate. But, from a business standpoint, I think that if you have a sibling, or child, working with you, they have every right to know that that plan is, especially if it affects their livelihood.”
Frank Kelly spoke during the Wyoming Stock Growers Association Winter Roundup in Casper in December. Heather Hamilton 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. .