Month: May 2013

Friday Facts, Fun and Food

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Well, it seems that my area of the world has entered monsoon season.  Rain is great, until it isn’t, right?

The USDA is launching a pilot for forage insurance plan.

Expect a survey in the mail from the USDA about crop and livestock production.

Here is a lengthy list of Apps for Agriculture.

This was discussed earlier in the week but there is new information on the demographics of beginning farmers.

Curious about crowdfunding as a way to jump-start your operation?  I’d recommend this story.

Goat causes car accident as it escapes slaughterhouse.

And, as I have been enjoying this cool weather, try a Spring Beef and Vegetable Stew.

Land access for beginning farmers

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By far, the topic of conversation among beginning farmers is access to land.  I’ve talked to many beginning farmers about this very topic.  How, I am asked, can I obtain access to land?

Before answering that question, we should start with what we know.  According to the Kansas City Federal Reserve, Nebraska agricultural land prices for irrigated land increased 32% and non-irrigated land increased 26.8% from the previous year.  Preliminary data on Nebraska cash rent values as of February 1, 2013 tell the same tale — cash rents are up statewide, depending upon the type of land,  from 19 to 30 percent.  (Keep in mind, however, that the preliminary data is broken down by region so the numbers vary more at that analysis level.)

With the above reality, how to obtain access to land?  I can’t promise the magic bullet, but I do have some ideas:

  • Take a long, hard look at your (proposed) operation and determine how much land you need, not how much land you want.  You may be able to lease smaller parcels and obtain the land your operation needs.  This may also include considerations of geography, i.e. whether you should move if you have the opportunity to secure land.  It will also include considerations of the type of land you need and housing possibilities.
  • Search for internships and other job opportunities to gain experience and network with other producers.  Internships and other opportunities are listed and/or promoted in various locations, including Beginning Farmers.
  • Consider leases, rather than ownership, especially when building your operation.  If you know an operator, present the operator with a business proposal to lease the property.  The proposal can include utilization of programs such as Nebraska’s Beginning Farmer Tax Credit.  More information about the Beginning Farmer Tax Credit is here.
  • There are several land-matching programs out there.  The Center for Rural Affair’s LandLink program is a nation-wide program where land owners with beginning farmers.  The Center also has a comprehensive list of other land-matching programs by state and region.
  • There are websites available which list agricultural land for sale.  A Google search will find numerous resources.
  • Keep in mind various financing strategies, both for your operation and real estate.  The Farm Service Agency has a variety of financing strategies for operating loans to real estate loans.

You don’t have to in your twenties to consider these strategies.  In fact, according to the latest research, many beginning farmers (those with ten years or less experience) are between the ages of 35 and 64.  There is no reason you cannot take some time to consider what you want to farm, how you want to farm, where you want to live, and craft a long-term strategy.

There are a lot of details in this post and Legal Aid of Nebraska is happy to help you with any questions about your particular operation.  Feel free to contact us!

Beginning Farmers and Veterans

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Because yesterday was Memorial Day, it is appropriate to discuss unique programs for veterans who are also beginning farmers.  If you are interested in the types of programs starting across the country, the National Young Farmers’ Coalition has a good overview.

In Nebraska, The Center for Rural Affairs spearheads the Veteran Farmers Project.  The Veteran Farmers Project provides training on farming topics and financing, individual consultants, and a HelpLine.

There is also the Farmer Veteran Coalition which lists various veteran farms and employment opportunities.  It also has an equipment donation program for farmers in Iowa.

And remember our conversation about the Farm Service Agency’s new microloans?  Microloans are also available to veterans.  Keep in mind that the Small Business Association also provides microloans up to $50,000 through non-profit intermediaries.  The SBA loans are similar to the FSA loans — you may purchase equipment or machinery, provide working capital, purchase inventory or supplies, and/or furniture and fixtures.  Of note, the microloan from the SBA cannot be used to purchase real estate. A listing of participating intermediaries by state is here.

Don’t forget, in Nebraska and South Dakota, Legal Aid of Nebraska can provide assistance to veterans who are also beginning farmers.  We’re happy to help so feel free to contact us at any time!

Friday Facts, Fun and Food

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As another week comes to a close, our thoughts are with those in Oklahoma.

Study concludes that internet access increases small farm gross income approximately $2,200 to $2,700 per year.  For purposes of the study, small farm was defined as a farm with a gross cash farm income of $250,000 or less.

Here’s an interesting post on the progress of corn planting but why we are below the record pace of planting.

The ACRE deadline is approaching quickly — the deadline to apply is June 3.

SDSU offers its drought outlook for South Dakota.

Farmers especially should consider estate planning sooner rather than later.  As part of that consideration, this is a great overview of why to involve the entire family during estate planning.

Interested in free ice cream?  Then head over to the University of Nebraska – Lincoln’s Food Processing Center on East Campus on June 9 from 1-5 p.m.  Also available are tours of the Center’s pilot plants, as well as interactive displays on sensory testing, marketing, food safety, and more.

Want something a little different for Memorial Day weekend?  May I suggest Lime Marinated Grilled Chicken?

I know what an LLC is … how do I form one?

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We broadly touched upon what a limited liability company (“LLC”) is in the previous post but how does one go about forming an LLC?

Because an LLC is authorized under Nebraska’s statutes, the statutes must be followed to form an LLC.  What are the steps involved?

  1. Choose a name for the LLC.  Note that the name must include ‘Limited Liability Company’, ‘LLC’, or ‘L.L.C.’ so the public is aware that it is an LLC.
  2. File a Certificate of Organization with the Nebraska Secretary of State.  The Certificate of Organization must include the LLC’s name and address, as well as the name and address of the registered agent of the LLC.  The registered agent is the person or entity authorized to receive legal papers for the LLC.  You also want to indicate the nature of the business on the Certificate of Organization.  The filing fee is $100.
  3. You are required to publish notice of organization for three successive weeks in a legal newspaper of general circulation near the designated office.  The notice must include the name of the LLC, street and mailing address of the LLC’s office and registered agent, and if organized to render a professional service, the profession service its managers, members, professional employees, and agents are licensed or otherwise legally authorized to render in Nebraska.
  4. An LLC is also required to file biennial reports — reports filed once every two years with the Nebraska Secretary of State.  These are filed in odd-numbered years.  There is a filing fee and if a report is not filed, the LLC will be dissolved by the State of Nebraska.

Keep in mind that while an operating agreement is not required, it is highly recommended.

If you are thinking of an LLC as you begin your farm operation or as a mechanism to assist in business and estate planning, Legal Aid of Nebraska is here to help.  Just feel free to contact us!

What is an LLC?

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If you read the back of the newspaper, I’m sure you have seen legal notices for the formation of limited liability companies.  In fact, some of those notifications may be for your neighbors.  So, what in the world is a limited liability company, or LLC?

The name alone, limited liability company, gives us some clues.  In an LLC, a person or persons contributes capital or assets to the company.  In return, the person or persons is not personally liable for the debts and liabilities of the LLC.  In other words, the extent of a person’s contribution to the LLC is the extent of the payment of debts and liabilities the LLC may incur.  This is the basis of ‘limited liability’.  This is the same limited liability a corporation has.

Unlike a corporation, however, an LLC has pass through taxation, or check-the-box taxation.  This is the same type of taxation a partnership has.  This means that any income of the LLC is treated as the income of the members of the LLC.  If the LLC is has only one member, the income or loss of the LLC is reported on the individual tax return of the member.  If the LLC has multiple members, each member receives a K-1 Form reporting the income distribution to the member.  This is the same form as a partnership.

An LLC may elect to be treated as a corporation for taxation purposes.  If that election is made, the LLC must choose between a traditional corporation (C-corp) or an S-corporation.  The details of that election is outside the scope of this blog post, but keep an eye out for future discussion.

An LLC has wide flexibility in determining how it operates.  While an LLC in Nebraska is not required to have a written operating agreement, it is highly recommended.  The operating agreement defines how the LLC is managed on a day-to-day and long-term basis, voting rights, who can bind the LLC to contracts, admission of new members, withdrawal/dissociation, distributions, amendment of the operating agreement, dissolution, transfer of LLC interests, and fiduciary duties.  Other issues can also be drafted into an operating agreement but the above are the big issues.  The operating agreement is private between the members of the LLC and is not required to be filed with a state agency when forming the LLC.

If you are considering an LLC as you begin your farming operation or as a mechanism in estate or business planning, feel free to contact us.  We’re happy to discuss the issues with you!

Friday Facts, Fun and Food

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Looks like the weather cooperated for farmers this week.  As I drove across the state, it was great to see fields planted (or in the process thereof!).

CRP sign-up begins May 20 through June 14.  Contact your local FSA office for information.

Some changes are afoot with crop insurance for organic producers.

Meet the first approved microloan applicant, age 19.

Beef Tenderloin and Asparagus …. you really can’t go wrong here.

Gifting as business succession

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Last week, the Kansas City Federal Reserve released its Fourth Quarter Agricultural Conditions Report.  The Report noted what we all intuitively knew — farmland prices keep rising and as a result, young and beginning farmers are having a difficult time acquiring land.

But there may be some ways to transfer land to young and beginning farmers who do not have the equity a more established farmer has.  One of those methods is the use of gifting.  How would that work?

First, recognize that the annual gift tax exclusion amount (for 2013) is $14,000, or if gift-splitting, $28,000 for spouses.  Thus, you may gift property with an fair market value of up to $14,000/$28,000.  You can think of gifting cash but also more broadly than that.  Property can be personal property, such as a piece of machinery or breeding livestock.  You could consider gifting crops, seed, or other inputs needed to get started.

Property could also be real property, such as a parcel of land or a residence.  You could gift various types of interest in the property, such as a leasehold.  Again, there is no reason not to think somewhat outside the box if you would like.

But property could also be intangible, such as shares of a limited liability company or S-corporation.  You may consider gift such shares but you will also want to consider the type of shares, such as voting or non-voting.

I realize that this may seem a paltry amount of property, especially in large operations.  But it is nonetheless a method to begin the transfer of the operation to the next generation.  It is also a method to slowly bring the next generation into the business, while mentoring and providing insight into the operation.

Also keep in mind that the monetary amount of the annual gift tax exclusion is indexed to inflation.  Thus, for 2012, the monetary limit was $13,000.  For 2013, it is $14,000.  The exclusion amount will continue upward.  There is no guarantee that inflation will keep apace with valuation increases in the operation but, should you run the numbers on your operation, you may be able to gift more than a nominal portion of your operation throughout the years.

As you consider business succession and transition, you are welcome to contact Legal Aid of Nebraska.  We’re happy to discuss the myriad of methods available for business succession and transition.

A brief summary of gift tax

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As I am fond of saying, there are gifts and then there are gifts.  What in the world I am talking about?

I’m talking about federal gift tax laws.  There are two gift tax provisions to be aware of: the annual gift tax exclusion and the gift tax.  Today’s edition is to give you a bit of background on gift taxes; the next post will discuss how to use the gift tax to help in the business succession of your farm or ranch.

Annual Gift Tax Exclusion:

The annual gift tax exclusion permits a person to gift, in 2013, up to $14,000 to an individual.  There is no limitation on the number of individuals who may receive up to $14,000.

If you are married, you and your spouse may contribute up to $28,000 per individual.  This is known as gift-splitting.  Keep in mind that each spouse must agree to the gift and gift splitting must be specified when filing taxes.  This requires each spouse to file a Form 709.

Because this is an annual exclusion, you can make this gift every year to individuals and pay no gift tax.

Gift Tax:

If you gift more than the annual exclusion limit to an individual, you are subject to federal gift tax.  The federal gift tax is part of the unified credit with the federal estate tax.  This means you can gift, in 2013, up to $5.25 million without being subject to the gift tax.

But how does the federal estate tax come into play?  The gift tax applies to lifetime gifts and the estate tax applies to assets left at death.  Whether you gift your assets or leave them at death, the assets are taxed in the same way at the same rate.  Thus, the gift tax and the estate tax are “unified”.  This means that when you combine the value of lifetime gifts and the value of your taxable estate at death, a total of $5.25 million is excluded from tax.

Keep in mind that the above information is general and is for your information only.  It is well worth your time to discuss your specific questions with your attorney and/or tax professional.  If you have specific questions, please feel free to contact us.

Friday Facts, Fun and Food

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Happy Friday — looks like part of Nebraska is out of drought!

Note that the 2012 Ag Census due May 31.

Direct marketers can now apply for funds to accept SNAP payments.  Want to determine if it is worthwhile?  Slate has created a tool to determine how many SNAP recipients are in a given locality.

Women-operated farms on the rise.

Want to continue The Good Life?   Retire in Nebraska — it is in the Top Ten according to Bankrate.

Curious about the EPA’s Oil Spill Prevention, Control, and Countermeasure regulations?  Information can be found here courtesy of the University of Nebraska – Lincoln.

Chicken diapers.  No, that was not a typo.

May is Beef Month in South Dakota.  Celebrate with a good steak.