The Transfer on Death Deed … Say What?

We’ve spent some time discussing taxation, contracts (and more contracts with some more contracts thrown in) but I want to turn our focus to estate planning issues.

As of January 2013, Nebraska introduced a new tool in estate planning — the transfer on death deed, or TOD deed.  This blog post gives an overview of the TOD deed but you are encouraged to speak with your attorney or contact us if you have further questions about TOD deeds or estate planning generally.

What is a TOD deed?  It is a deed filed with the Register of Deeds in the appropriate county that allows real property (e.g. land) to transfer upon the owner’s death to the beneficiary designed on the TOD deed.  A TOD deed does not require probate because it is considered a non-probate transfer, just like bank accounts or life insurance policies with beneficiary designations.

What are the requirements?  The TOD deed is only for real property, such as land or residences.  The property must be in the State of Nebraska.  The person transferring the property must be an individual acting only as an individual.  The designated beneficiary may be an individual, corporation, estate, trustee of a trust, partnership, limited liability company, association, joint venture, public corporation, a government or governmental subdivision, agency, or any other legal or commercial entity.

The TOD deed must be signed by the transferor and two disinterested witnesses.  At the same time, a Notary Public must be present to witness all three persons and their signatures on the TOD deed.  The transferor (person make the transfer) must have the same capacity as the capacity required to make a will.

When is a TOD deed filed?  Per Nebraska law, the TOD deed must be filed within thirty days at the appropriate county office where the real estate is located.  If the TOD is not filed within 30 days of its execution, it is invalid.  Additionally, the TOD deed must be filed prior to the death of the transferor.

What if I change my mind?  The TOD deed may be revoked.  Because the TOD deed does not transfer real property until the death of the transferor, the TOD deed may be revoked.  The transferor must filed a revocation of the TOD deed in the same appropriate county office within 30 days of executing the revocation.  A divorce automatically revokes a TOD deed if the now-divorced spouses are a transferor and beneficiary respectively.

In short, the TOD deed is a tool in the estate planning toolbox.  Each specific estate plan requires different questions and considerations.  Thus, feel free to attend our workshops or contact your attorney for further information about your estate planning goals.

Prescribed burns

As we approach the Fourth of July and watch the wildfires in the western United States, fires and fire safety are a topic of conversation.  It is common for farmers and ranchers in Nebraska to use controlled burns for various land-management purposes.  However, there are some legal obligations to follow prior to igniting a controlled burn.  Not following these obligations results in a Class IV misdemeanor.

Open Burning Permit:

For an open burning, the local fire department issues an open burning permit.  The fire department may adopt standards listing the conditions acceptable for issuing the open burning permit; check with your local fire department if such standards have been adopted.

Land-Management Burning:

Land-management burning is defined as the controlled application of fire to existing vegetative matter on land utilized for grazing, pasture, forest, or grassland to control weeds, pests, insects, and disease, prevent wildland fires, manager watersheds, care for windbreaks, and conduct scientific research.  The local fire chief must approve an application for a permit to burn.  The application for the permit requires a plan for conducting land-management burning.  The plan must include:

  • The name of the landowner;
  • The name of the person who will supervise the burning, if different than the landowner;
  • The land-management objective to be accomplished (e.g. removal of cedar trees);
  • A map showing the areas to be burned, including nature and man-made firebreaks;
  • Procedures to be used to confine the fire in boundary areas without pre-existing firebreaks;
  • A list of equipment that will be on hand;
  • Types and condition of the vegetative matter to be burned on the land and adjacent areas;
  • Identification of roads and habitations (e.g. residences) that may be affected by smoke;
  • A description of weather conditions believed to be required to conduct the burn, including wind speed and direction, temperature, and relative humidity; and
  • Other information as required by the fire chief.

A permit is valid only for thirty days.  A permit is issued if a plan that complies with the above items is submitted and the fire chief determines the burning would be conducted with due regard for the safety of people and property outside the burning areas.

Have any questions?   Feel free to contact us!

Noxious Weeds Are Obnoxious

When I was growing up, my Dad’s favorite reward for unacceptable behavior was tell my brothers and me that we had to spend an hour in the pasture digging up musk thistle.  To this day, I can spot a musk thistle from 300 feet away and feel compelled to dig it up.  This wasn’t a fruitless exercise invented by my Dad.  It was also his method of controlled a noxious week in our pasture.

What are the laws on noxious weeds?

The Nebraska Department of Agriculture operates the Nebraska Noxious Weed Program.  The Program is to control invasive weeds that are dangerous to the humans, livestock, and compete with crops and pasture, substantially reducing yields.

What weeds are classified as noxious?

  • Canada Thistle
  • Leafy Spurge
  • Musk Thistle
  • Plumeless Thistle
  • Sericea lespedeza
  • Giant Knotweed
  • Purple Loosestrife
  • Spotted and Diffuse Knapweeds
  • Saltcedar
  • Phragmites
  • Japanese Knotweed
  • Bohemian Knotweed

If you need help identifying any of the above, pictures of each are here.

But what responsibilities do you as a farmer or rancher have with regards to noxious weeds?  First, it is the duty of any person to control the spread of noxious weeds on lands owned or controlled by him or her.  See Neb. Rev. Stat. § 2-952.  A person is not limited to an individual; it includes partnerships, firms, limited liability companies, corporations, companies, societies, or association.  Land is controlled by a person when the person has the authority to operate, manage, supervise, or exercise jurisdiction over or any similar power.  To control noxious weeds means the prevention, suppression, or limitation of growth, spread, propagation, or development or the eradication of weeds.  Neb. Rev. Stat. ¶ 2-953.

If a person fails to comply with controlling noxious weeds and the weed control authority finds that prompt control of weeds is required, a notice shall be given.  The person is provided fifteen days to control the weeds and a conviction of noncompliance may result in a $100 per day fine not to exceed $1,500.  If more immediate action is required, the weed control authority may proceed as necessary and place a tax lien on the property for the expenses of controlling the weeds.

Long story short?  Keep in eye out for noxious weeds and keep them under control.  You want to maximize the growth in your pastures and fields; one of the ways to do so is keeping the noxious weeds under control.

Offer + Acceptance + Consideration = Contract

I have been reading a number of articles on contracts entered into by farmers for their produce, crops, and/or livestock at the same time I was writing last Thursday’s post about leasing land.  It got me to thinking that perhaps a blog post about the elements required to form a contract was in order.

First, what are the elements of a contract?  A contract requires:

  1. Offer;
  2. Acceptance; and
  3. Consideration.

An offer is an intention to be contractually bound upon the acceptance of another party.  In other words, Person A offers certain terms to Person B as an offer.  Person B can then accept the offer.  Consideration is when Person A makes a promise, Person B makes a promise in return.  The promise must be something of value and can take the form of money, action, abstaining from action, services, and other valuable consideration.

Lets use some examples to illustrate offer, acceptance, and consideration.

Example 1:

Person A approaches Person B and states, “I’d like to rent your 300 acres to plant corn and I will pay 40% of the input costs and receive 40% of the profits.”  Person B agrees to Person A’s terms.

In Example 1, the Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that she will pay 40% of the input costs and 60% of the profits to Person B.  Person B’s consideration is agreeing to Person A renting his land and paying 60% of the input costs.

Example 2:

Person A approaches Person B and states, “I will not grow crops on my land for ten years if I receive $100 per acre per year.”  Person B agrees to Person A’s terms.

In Example 2, Person A makes the offer and Person B accepts the offer.  Person A’s consideration is that he will abstain from using his land for ten years to grow crops.  Person B’s consideration is that she will pay $100 per acre per year for Person A not to grow crops.

Example 3:

Person A approaches Person B and suggests renting 80 acres for cow/calf grazing from May 1, 2013 to October 31, 2013.  Person B replies that she is willing to rent 50 acres from May 1, 2013 to September 30, 2013.  Person A agrees to Person B’s proposal.

Here, Person A makes an offer to Person B.  Person B, however, rejects Person A’s offer and instead, issues a counter-offer.  Person A then accepts Person B’s counter-offer.  The consideration by Person A is the payment of rent.  The consideration by Person B is permitting the use of her land.

Example 4:

Person A contracts with Person B to custom harvest hay for $2,000.  When Person B has partially completed the custom harvest, she approaches Person A and says she will only complete the custom harvest for an additional $2,000, for a total price of $4,000.

Here, Person A is obligated only to pay $2,000, the price originally agreed because a contract existed (as there was offer, acceptance, and consideration) and thus, Person B was under a contractual obligation to perform the custom harvesting for $2,000.  In other words, Person B had a pre-existing obligation to perform the work in exchange for $2,000.

Example 5:

Lets change the facts of Example 3 a little bit.  Person A contracts with Person B to custom harvest hay on a quarter section for $2,000.  When Person B has partially completed the custom harvest, Person A approaches Person A and suggests that Person B custom harvest hay on a second quarter section.  Person B responds that to do so will require an additional $2,000.  Person A agrees to pay the additional $2,000.

Unlike Example 3, Person A and Person B entered into a new, second contract.  The offer from Person A is to custom hay the second quarter section.  Person B counter-offers that to do will require $2,000.  Person A accepts.  The consideration from Person A is $2,000 and the consideration from Person B is completing the custom hay work.

Offer, acceptance, and consideration are bedrock elements of contract law but the specifics of contract law varies by state.  Thursday we will discuss implications of the Uniform Commercial Code and the statute of frauds for contracts.  If you are from Nebraska or South Dakota, feel free to contact us if you have questions.  If you are from a different state, contact a licensed attorney should you have questions.

What is this I hear about liens?

It is not a topic many people want to think about, but what happens if you do custom work for a farmer and you do not get paid?  Every state has various laws to deal with this scenario. Nebraska and South Dakota have a number of different liens that may be filed, as every state does.

The National Agricultural Law Center maintains a listing of Nebraska and South Dakota liens.  Each state is discussed below:

Nebraska:

Nebraska requires most individuals filing a lien to do so through a financing statement.  A financing statement is part of Article 9 of the Uniform Commercial Code.  What is a financing statement in Article 9 of the Uniform Commercial Code?  It is a form that a creditor (here, the person filing the lien) files to give notice that the creditor may have an interest in the personal property of a debtor (the person who owes the creditor money).  The filing allows the creditor to “perfect” his or her interest, meaning that the creditor has an interest in specific property which would then be given a specific place in the priority of creditors to be paid.

The Nebraska Secretary of State is where financing statements are filed.  To obtain a financing statement to file, the Nebraska Secretary of State provides the form to fill out.  There is a filing fee to file the financing statement; the fees are listed here.

Keep in mind that a financing statement is effective for five years after the date of filing and is considered lapsed.  A continuation statement may be filed within six months of the expiration of the five year period.  Should the financing statement lapse, the lien will no longer be perfected, meaning your place in the priority for payment will be considered to have never existed.

In summary, know what type of lien is applicable to you and whether you must file a financing statement.  If you need assistance answering these questions, contact us!

South Dakota:

South Dakota does not have the Uniform Commercial Code requirements that Nebraska has.  In South Dakota, the county Register of Deeds is where liens are filed.  The procedures under the Uniform Commercial Code are not applicable in South Dakota for agricultural liens.

But just like Nebraska residents, if you have a question about liens, feel free to contact us!

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

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?

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!

Nebraska Personal Property Tax Exemption for Beginning Farmers

Nebraska’s beginning farmers and ranchers have a tax program available to them, the Personal Property Tax Exemption.  The Personal Property Tax Exemption is for beginning farmers, defined as those farming for ten years or less out of the past fifteen.  What the tax exemption provides is:

  • A three year tax exemption on tangible personal property up to $100,000 per year; for
  • Tangible personal property is agricultural or horticultural machinery and equipment.

How do you apply?  The application can be found at the Nebraska Department of Agriculture’s website.  (Note the application is the same as the Beginning Farmer Tax Credit — just check the box for the personal property exemption in the upper-right hand corner.)  You must apply by November 1 of the year preceding the year in which the exemption is to begin.  This means for an exemption starting in 2014, you must apply by November 1, 2013.

Does this mean the Beginning Farmer Tax Credit and Personal Property Exemption must be applied for at the same time?  No!  Does it also mean you must be a beginning farmer throughout the three year exemption?  No — you must only be a beginning farmer in the first year of the exemption.  However, the exemption is a one-time only proposition — you cannot keep applying for it.

This means that you can plan ahead for the optional time to apply for the tax exemption.  If your operation’s business plan is to purchase equipment in years five through seven (and you remain a beginning farmer at year five), you would want to apply for the tax exemption at that time, rather than applying for it immediately.

If you have any questions or require any assistance in applying for the personal property tax exemption, feel free to contact Legal Aid of Nebraska at 855-660-1391 or online here.