Don’t just trust that your trust reflects your current wishes.

A few weeks ago, I came across a case from the Indiana Court of Appeals that demonstrated exactly why, when creating a trust, it is also necessary to: (1)  review the provisions of the trust periodically, and (2) ensure that all the property you wish to place in the trust is, in fact, in the trust.

In the Indiana case, the settlor (the person who created the trust) created the trust in 1991 and stated that all real estate went to his brother.  The remainder of the trust assets were to be divided among nineteen individuals.  Then, in 1993, the settlor purchased a farm.  In 1998, the settlor also executed a last will and testament stating that any property not in the trust would “pour-over” into the trust for distribution according to the terms of the trust.  (By this point in the story, you can probably guess the ending.)  The trust was amended in 1998, stating the brother could purchase the farm if the brother survived the settlor and his wife.  The amendment also stated after distribution to the brother, the remainder of the trust would pass to the nineteen individuals via cash distributions.

Long story short, because the farm was never in the trust, that meant the farm “poured over” into the trust and was distributed to the nineteen individuals and not the brother (more accurately, the brother’s two children as the brother was deceased).

The lesson: make sure your estate planning documents do what you want them to do and that, should you have a trust, the property you want to be in the trust is deeded to the trust.   I speak with many farmers and ranchers, and a significant number have a revocable trust.  Many of the trusts were written five, ten, even twenty years ago and do not reflect changes in the operation and changes in wishes.

What should farmers and ranchers be doing to ensure that what they want in their estate happens?  First, take a look at your estate planning documents once a year.  A good time to do this would be when you are drafting your balance sheets or doing other annual paperwork.  Make sure that the estate planning documents reflect your wishes.  Double-check that all property you wish to be in the trust is deeded to the trust.  Second, whenever you purchase property, make sure it is properly deeded to the correct person, trust, or business entity to effectuate your estate plan.  The same is true when you sell property; ensure that property sold and the use of the sale proceeds do not hinder your estate plan.  Third, and unfortunately, life happens while we make other plans.  When unexpected changes occur, such as to your operation or a divorce, review your estate plan and make sure it reflects the life change.

Are you a farmer or rancher who wants to discuss their estate plan and ensure it does what you want?  You are welcome to contact us!

Friday Facts, Fun and Food.

Can anyone else believe that August is here?  Time is flying in 2013, at least from my perspective.

Reminder that applications to Nebraska NRCS to restore windbreaks are due August 14, 2013 to optimize ranking of applications to receive funding.

Interesting articles on Branched Oak Farm and Dutch Girl Creamery in the Omaha World-Herald and Lincoln Journal-Star this week.  As a frequent Dante’s diner, I can attest to how fantastic the mozzarella cheese is.

The Outdoor University is tomorrow, August 3, in Sertoma Park, Sioux Falls from 9 a.m. to 4 p.m.  The rock climbing sounds like fun.

For those of you in the Omaha area and over the age of 21, may I suggest the Omaha Beer and Bacon Festival on August 3?

National Farmers’ Market Week is August 4 -10.  Get out and explore your local farmers’ market.  See if you can’t find all the makings for Sausage with Peppers, Onions, and Beer.

Timing the Nebraska Personal Property Tax Exemption

We previously discussed the math of the Nebraska Beginning Farmer Tax Credit.  Nebraska also offers a personal property tax exemption to beginning farmers for the purchase of personal property, such as machinery, used in the production of agriculture or horticulture.  Unlike the Beginning Farmer Tax Credit, the Personal Property Tax Exemption is provided to the beginning farmer, not the owner of agricultural assets (i.e. the person a beginning farmer leases from).

We have discussed the requirements for eligibility of the personal property exemption previously, but nonetheless, the requirements for the beginning farmer are the same as for the Beginning Farmer Tax Credit, with one exception: the personal property tax exemption does not require the beginning farmer to rent from someone to be eligible.

Why is timing important for the personal property tax exemption?  It is because the personal property tax exemption allows for a personal property tax exemption up to $100,000 a year for three years.  Once a beginning farmer is uses in the program, the beginning farmer may not use it again.  Thus, the beginning farmer should time when they apply for the tax exemption so as to maximize its potential.

Lets say that you are a beginning farmer.  Your business plan is to grow your business slowly but steadily.  Your business plan calls for you to steadily purchase equipment and machinery throughout your ten years as a beginning farmer.  You may begin with a drill or small tractor.  You plan to expand to a larger tractor and perhaps haying equipment.  Or, your operation may require specialized equipment.

Knowing this, it is best to plan when to apply for the personal property tax exemption at a time in your operation when you plan to outlay the most money on personal property purchases.  That way, the beginning farmer can use the personal property tax exemption to the maximum effect, helping the cash flow of the operation.

Keep in mind that the application for the personal property tax exemption is due by November 1st of the year prior to the year the exemption is sought.  For example, to apply for the exemption for 2014 through 2016, a beginning farmer must apply to the Beginning Farmer Board by November 1, 2013.  Then, to claim the exemption, the beginning farmer must present the eligibility certificate issued by the Beginning Farmer Board to proper county assessor by December 31 for approval.

Have questions?  Or just want to talk about the math?  Feel free to contact us!