Like any good lawyer, the first answer is always, “It Depends.” However, before jumping into a Trust there are a lot of other options to consider.
First – let’s set some parameters for this discussion: if the value of all of your assets is more than the estate tax exemption (for 2023, that is $12.92M or $25.84M for a married couple), then effective planning can be much more complicated and beyond the scope of this article. For purposes of this article, we are assuming that your combined net worth is less than the exemption amount, so we can make use of several techniques that are relatively easy to implement.
Let’s (briefly) talk about the two primary kinds of trusts – Revocable and Irrevocable.
Like the name suggests, a Revocable Trust can be revoked or changed at the whim of the Settlor (the person who creates the trust – in this case, YOU). It is not “irrevocable” until your death. This is useful for easy transition to the next generation and avoids the somewhat time-consuming and cumbersome journey through Probate. It is fairly easy to set up, with the most complicated feature being remembering to put all (or almost all) of your assets into the Revocable Trust as you continue on your life journey.
If a Revocable Trust is a good idea for your planning, I don’t recommend putting your farm assets in the TRUST. Instead, I recommend creating a Limited Liability Company or other entityto hold the farm assets, and then your Revocable Trust can own the entity. The entity is free to continue farming as before, the “public-facing” entity is not a “trust” (more business-like appearance), and it is much easier to divide ownership shares between heirs than acres (or tractors).
A Revocable Trust does not save estate taxes, which is why you should seek other planning if you have a net worth in the Estate Tax Danger Zone (ETDZ).
An Irrevocable Trust cannot be revoked and has only limited ability to change. It is a completed “gift” of your assets to the Trust. Those assets must be appraised and a gift tax return filed, which will erode (reduce) your available estate tax exemption. Because I try to build as much flexibility as possible into my clients’ estate plans, this is not (typically) a good tool for folks not in the ETDZ.
There are other planning tools that might be easier to transfer assets to the next generation if your assets are not an active farm business. For example, if you cash rent all of your land (or farm on the shares), or for other assets like investment accounts, a “Transfer on Death” (TOD) ownership will retain 100% of ownership in your hands and control, but at your death, the asset automatically transfers to the named beneficiary. This technique works for any asset that does not already have a beneficiary designation (such as an IRA). TOD ownership can be used for real estate, investment accounts, automobiles, and anything with a “title” or “named” ownership. You can even use it for “non-titled” personal property, like artwork, furniture, and household goods, if you set it up correctly.
When you talk to your attorney, be sure that your advisor reviews the available options with you. If you go to an attorney and say “I want a Trust,” the attorney should spend some time reviewing other available options with you. If not, then please talk to another attorney. I have seen too many clients who have trusts that are not useful to the client’s estate planning goals – and some with harmful (with a tax burden or impact on family harmony) and unintended consequences. Be sure you understand the options and are comfortable that a Trust is right for you.
The current question that crosses my desk almost daily is “Can I require my employees to be vaccinated?”
The short answer is, “yes.”
The long answer is “it depends.”
The impact of COVID on our lives and future is still evolving. How our nation, large businesses, small businesses, nonprofits, and individuals respond to the ever-changing environment will continue to change over time.
Here is my 4-point checklist of considerations when making rules, policies, or requirements for employees or the public:
(1) Be flexible – The answer is rarely black-and-white and you will always find an exception to your rule. Don’t make policies or rules that paint yourself into a box.
(2) Don’t be afraid to change your mind as information changes. We know a lot more today than we did a year ago. Imagine how much more we will know next year? New information can support changes, and you should be prepared to change to benefit your employees, your customers, and yourself.
(3) Consider the unintended consequences of your choices. You may lose employees (or customers) because of your decisions. You have to assume that your world, your employee base, and your ability to run your business will not return to pre-2020 levels. Can you afford those potential losses? Which is worse – the consequences of the change, or the failure to change?
(4) Consider the reaction (and feelings) of the people who are affected by your decision. While you may need to make an unpopular decision or enforce an unpopular policy, it is important to manage the human response to those decisions. Use a carrot whenever possible, and try to limit the use of a stick.
For two excellent articles regarding vaccine mandates and employees, check out Blue Avocado:
On Monday, October 5, 2020, the US Supreme Court denied the petition for Certiorari in the Himsel v. Himsel case. This decision is an affirmation of the constitutionality of the Indiana Right to Farm Act.
The decision of the US Supreme Court to let the Indiana Court of Appeals decision stand is an important benchmark in Indiana agriculture. The ability of farmers to use the best and most contemporary farming practices, as well as make use of economies of scale in production both for profitability and the maximum care of the agriculture product is critical to both keep Indiana competitive in the global marketplace and for farmers to continue to operate and earn a liveable income from the important industry of agriculture.
Agriculture has changed more in the past one hundred years than it had throughout the previous millenium. Those who challenge modern farming practices fail to understand the critical role modern agricluture plays in our ability to feed ourselves and the world. They also fail to understand the most basic tenant of farming – to take the best care of your livestock and crops as both a moral imperitive and as a path to profitability.
Carroll County Hog Barns
Farmers work hard, care deeply for livestock and crops, and strive to produce the best.
Shoutout to Brianna Schroeder for a great summary of the Indiana Supreme Court case Himsel v Himsel, decided on February 21, 2020. Please check out her well-written and very readable article via the link, below:
This is a case involving the Indiana Right to Farm Act, and particularly, the Indiana Supreme Court makes clear that modern agriculture practices – including contemporary livestock farming – is consistent with historic agriculture use. Quoting from the article:
“The farmers and the amici argued—and the Court agreed—that the Act preserves farmland by protecting farmers against nuisance lawsuits even if the modern farm arrives after the neighbors built their homes in the area. The change from cropland to livestock farming is not a statutorily “significant change” that would remove the Act’s protections. The farm was used for agricultural purposes in general at least as early as 1941, and neighbors’ non-farming land use began well after 1941. The neighbors knowingly built their homes in an agricultural area. That was enough for the Act to apply. The Court also rejected neighbors’ attempt to “repackage” their nuisance claim as one for “trespass” or “negligent siting.” ”
The Indiana Supreme Court ruled on several other principles of law which support the Indiana Right to Farm Act in general, and as applies to this case.
All farmers should (continue to) be considerate and compassionate toward residential neighbors, However, residential neighbors need to be aware of modern farming practices, now, and in the future.
In many farm families, children help their parents with chores, caring for the animals, or tending the crops. When they’re young, they often just want to help and “do what mom and dad do.” But once they get old enough (and experienced enough) to perform more skilled or “grown-up” tasks, many farmers want to pay their children for their labor at a rate more in line with the fair market value of their labor. When farmers start paying their children for work on the family farm, one general question invariably comes to mind: “Do my kids need to file a tax return?”
Here are some frequently asked questions about when your children need to file taxes and paying them for work on the farm:
Q: When do my children need to start filing taxes?
A: Generally, you can assume that your child needs to earn the “standard deduction amount” before you must file taxes. The standard deduction amount is $12,400 for a single person in 2020. However, if your children have W2 income they might want to run the numbers to see if they qualify for a refund of the withheld taxes from that W2 income, in which case filing a tax return would be a good idea.
Q: What if my child is an owner in the family farm and receives income through the family farm operation, or has income from dividends or interest on investments?
A: If a minor has “unearned income” in excess of $1,100, then they will need to file a tax return, regardless of earned income. A minor is taxed at their parents’ rate on any taxable unearned income. For farm kids, this becomes an issue if they have an ownership interest in a pass-through farm entity and receive a K1. If a child’s unearned income is only on bank account income, then filing a tax return is usually not necessary unless they approach the standard deduction amount in earned income.
Q: How should I report my children’s’ farm income that I pay to them for their work on the family farm?
A: It depends, based on how much that farm income is.
If your children’s total earned income for the year is under $600, then you don’t need to do anything.
If your children will likely be well within the $12,400 mark for their 2020 income but over $600, a 1099 is a good idea. If their income is within the standard deduction amount then they won’t owe any income tax on earned income, and with a 1099 they won’t have to go through the process of filing a return to get a refund of withheld income. On the other hand, YOU will be able to deduct the amount that you pay them as a legitimate farm expense.
If your children will be earning close to $12,400 mark and you are already issuing W2’s to other employees, then consider adding your children to the payroll system and issuing them a W2 as well. [NOTE – if you put your children on your payroll, remember that they are also subject to consideration in worker’s comp and unemployment reporting].
BONUS: If you pay your child through normal payroll, your child has the opportunity to start funding an IRA. While retirement years seem far, far, away for a minor, a small investment in a tax-deferred account can grow significantly over your child’s working life.
It’s not news that technology is both a blessing and a burden. Every new iteration of today’s farm equipment is more efficient and allows the farmer to manage acres despite an ever-dwindling labor pool.
Today’s technologically advanced farm equipment is computer-controlled from the steering wheel to the tractor tires. Unfortunately, John Deere uses proprietary software to control all the equipment operations, and even simple malfunctions require special software to diagnose and repair. Of course, only your authorized John Deere dealer has access to that software, and if it is late or your farm is too far away from a dealership (or the dealership doesn’t have enough technicians to serve all the customers), a farmer could be stopped indefinitely. Every hour of downtime costs money.
In protest, some farmers are turning to computer hacks or black market copies of diagnostic software so they can make their own repairs. Technically, this violates the intellectual property of John Deere. Practically, farmers believe they have no choice since John Deere is unable to provide any reasonable alternative.
Iowa is considering legislation that would allow farmers to use diagnostic software without penalty. This is causing quite a stir in other technology markets. While I disagree that AT&T and Microsoft would suddenly decline to sell their products in a state that allowed device hacking, I certainly can see cause for concern.
There should be a “happy medium” where both sides can prosper. The manufacturers should provide licensed diagnostic software that allows the farmers to make their own repairs. Those that are geographically remote or mechanically capable will take advantage of the opportunity, but my expectation is that there will still be a substantial market for dealerships to provide technical and mechanical service.
Farm labor is becoming too scarce – and this includes qualified technicians. John Deere should embrace this change, and not only provide diagnostic software but teach classes (and provide certification). A smart corporation can figure out how to profit from a model that make the customer happy.