Estate planning helps farms and ranches pass on to the next generation
Thermopolis – Larry Heiser believes estate planning transitions agriculture operations successfully from one generation to the next.
On Jan. 20, Larry Heiser, certified public accountant (CPA) from Worland, presented at the Wyoming Farm Bureau Federation Young Farmers and Ranchers 2018 “Springing Outward and Upward” conference.
Heiser discussed the basics of estate planning, probate, gifting and the need to plan for the nursing home.
In Heiser’s opinion, “Estate plans are multifaceted and they to cover a number of areas as they relate to an individual’s situation.”
He said most people have different conceptions and misconceptions about estate planning.
“With agriculture, there are special circumstances to consider for estate planning, and everyone should have an estate plan,” Heiser added, noting most agribusiness should plan with probate, estate taxes, the nursing home and anything else that may come up in the future in mind.
“There are a lot of attorneys who do estate planning, but people need to be careful because most attorneys provide a one-size-fits-all plan,” he mentioned. “Most importantly, they don’t see people for 15 to 20 years afterwards.”
Some insurance agents also get involved in estate planning, Heiser said, along with CPAs.
“I think CPAs are uniquely qualified for estate planning because we see people every year, can monitor the plans and know what’s going on with tax laws,” Heiser stated. “Don’t ever believe that once there is a plan it never needs to be looked at or changed.”
He also stated estate planning can help people avoid probate and state taxes or death taxes, gift assets and plan for the nursing home.
One of the biggest misconceptions about probate is that it can be avoided using a will, according to Heiser.
“Probate is two percent of valued assets that both an attorney and estate executor can charge to move assets to another person. A will doesn’t help avoid probate because, whether someone passes away with a will or not, there will be probate,” he added, noting the process is lengthy and expensive.
Also, when an estate goes through probate, the complete list of assets becomes public record, Heiser mentioned.
To avoid probate, people have a few options, like ownership and trusts.
“Ownership is used a lot but is extremely dangerous,” stated Heiser. “If someone made another person an owner and there was a lawsuit, the entire property could be lost.”
The best way to avoid probate, noted Heiser, is to set up a revocable trust.
“With a revocable trust, as long as the person is competent or alive, they can change the trust,” he explained. “A revocable trust is a glorified will that allows people more control, the assets don’t become public knowledge and cannot be contested.”
For Heiser, the most misunderstood practice in estate planning is gifting.
“If someone has an asset with deferred taxes and already paid the income taxes, when it is gifted, the receiver doesn’t have to pay any taxes,” explained Heiser. “This is extremely important because the owner and receiver wouldn’t pay taxes to give or receive the asset.”
He added, if people gift more than $14,000 in assets a year, they have to file a gift tax return with the Internal Revenue Service (IRS), but if the gift is $14,000 or less, then the IRS doesn’t need to be notified.
“To gift properly, there must be documentation on the worth of the land, cattle and machinery, as well as the debt and other assets that make up the net worth of the entity,” Heiser noted.
A gift can be property, livestock, cash and more, added Heiser, emphasizing, “Any gift over $14,000 requires a return be filed, and it is important to file a gift tax return to prevent penalties from the IRS. Gifting has to be done correctly.”
“I believe gifting is one of the most underutilized parts of estate planning for agribusinesses,” Heiser stated.
One of the biggest issues people need to plan for is the nursing home, according to Heiser.
“If people don’t plan for the nursing home, their operations will be cannibalized,” he stated. “Nursing homes are very expensive and can ruin an operation.”
To plan for nursing home costs, he said nursing home insurance is one option, but insurance only pays so much per day based on when the policy is created. People can also use buy-sell agreements to avoid the nursing home putting a lien on their land, cattle or equipment.
“The best way to plan for the nursing home is to make sure on farm heirs are compensated equitably every year using gifting,” said Heiser. “If a gift is made, 60 months goes by and the gift giver goes in the nursing home, the government can’t come back and take a piece of that asset.”
“Nursing homes can bankrupt operations very easily, and with proper planning, the effect can be minimized or even avoided,” he stated.
Estate planning is very specialized for people in agriculture, and Heiser mentioned helping people successfully transition from one generation to the next is very gratifying.
Heather Loraas is assistant editor of the Wyoming Livestock Roundup and can be reached at email@example.com.