Rising real estate taxes and reduced cash rents are causing farm earnings to drop to levels that are creating serious cash flow problems for many landowners. Often retired landowners rely on their net farm income for a major portion of their retirement living. When that shrinks to critical levels, it causes real concerns. Often times today, the net income to the landowner is only about 2 – 2 ½ percent based upon today’s market value for that farmland.
Your first reaction is well, I cannot sell the farm because I have a low cost basis and the capital gains taxes are not an acceptable outcome.
Don’t despair! There is a solution. A farm owner can sell and exchange that equity into other investment grade real estate and receive double the net earnings achieved today from the farmland. Your first reaction is probably, well, I don’t know anything about investing in commercial or investment grade real estate and I don’t have the management skills or enough equity to select good replacement property.
Again, there is an answer for those concerns. There are reputable companies that do all of that for you. Those companies research and acquire several different types of investment grade properties that throw off good earnings. Those properties are professionally leased and managed. They are acquired in a trust entity.
Simply put, you can exchange the equity in your farm for a beneficial interest in one of those trusts tax free, and receive a 5 – 5 ½ percent return currently. Those beneficial interests in such a trust are eligible for a “stepped up basis” upon the death of the owner, just like your farmland. They are liquid, can be bought and sold as the owner needs change.
If you would like to explore possibly doubling the cash earnings for the equity in you farmland, please give us a call today! We will be happy to share this concept with you.
By: Roger Heller, Accredited Farm Manager and Accredited Land Consultant
Its not uncommon for the maker of a Will to name an adult child to be the Personal Representative (PR). That might be a good choice if their temperament, integrity, and skill set allow them to carry out their duties effectively. Your child presumably know your intentions and can readily find the assets that need to be inventoried.
However, if there is bad blood among your children, or if you have a blended family, naming as PR a child who might be part of a future controversy could be a perilous move. Even worse, is naming two rival siblings as “co-personal representatives”. A possible result? Tens of thousands of dollars of the estate, intended to go to the benefit of whom you choose, is squandered in legal fees.
What’s the solution? Choosing a trusted, common-sense friend or relative who doesn’t have a “dog in the fight” might be a sound choice. Another option could be an attorney, financial professional or a bank with a trust department. You might be considering naming an institutional PR (such as a bank or trust company) instead of a flesh-and-blood model. That can carry a high price tag, and in an article I read, it suggests doing that “only when there is severe family dysfunction or you don’t have anyone qualified or who wants to serve”. When using an institutional PR, this also could make sense if there is a blended-family situation.
By choosing outside the immediate family for your PR, parents avoid having to choose between their children so that no one is upset. In essence, you will have given your kids a final gift of having a professional navigate the administration of your estate plan.
Doing research for these blogs was very interesting and informative, not only for me but hopefully for you also. As I mentioned before, these blogs are to be used as a guideline only. It is highly recommended when planning the important function of choosing your Personal Representative, an attorney, accountant or financial advisor should be contacted.
Gary P Hotovec
Your estate requires a Personal Representative, or simply PR, to do some or all of the following as part of the probate process:
*Locate your will
*Retain an attorney
*Order death certificates
*Gather information relative to your assets and liabilities
*Open an estate bank account
*Gather and protect all of your assets
*File tax forms*
*Keep detailed records of expenses*
*File an accounting with the court*
…..and the list goes on.
When meeting with the attorney that drafts your estate planning documents, you will be asked for names of people to serve in various roles. One of these roles will be your Personal Representative.
The PR’s job will start right after death. Tell your PR where your trust papers or will are located so there won’t be delays getting the paperwork filed. Make sure your PR has the proper documentation to be able to open any safe deposit boxes you may have. The lack of this documentation could delay settlement of your estate while waiting for the courts to approve your PR access to the safe deposit box.
A common error parents may make when doing their estate planning is not making this hard choice as to who they want to serve as their PR.
I’m an auctioneer and also a Realtor at Heller Group – 1-Stop Realty. Realtors and Auctioneers have worked very closely with many different Personal Representatives over the years. For one to choose a good Personal Representative will have a huge impact on your estate.
First, let’s look at the responsibilities of a Personal Representative (PR) appointed by you to represent you and your wishes. Before I go too far, each of your situations are different and from state to state, there are different laws that will be in effect, so check with your attorney and/or accountant. This article is to be taken as a guideline only and each one of you reading this article are encouraged to consult professional and legal professionals. Be aware, each state in the United States has different rules governing pre-death and post-death issues. If you move, consult with an attorney in your new state to ensure that your current documents are effective. Also, since the laws change often as do your family circumstances, remember to update your documents regularly.
My opinion is that you need to select a PR that is organized, good with handling money and age appropriate. A PR has a tremendous amount of responsibility, depending on the size of your estate. If you have not secured an attorney for your estate before death the first job your PR would have is to select one. The attorney will assist with the probate process. Nominate someone that is willing and able to deal with what may be time consuming activities. From articles I’ve read, your PR should live less than 100 miles from you.
The next blog will be about what the PR does and their responsibilities.
Gary P Hotovec
On March 23, 24, and 25, 2015, Pat Keltgen and I from the Heller Group attended the annual Land Conference sponsored by the REALTORS® LAND INSTITUTE in Tucson, AZ. It was attended by over 190 land specialists from across America.
The highlight of the presentation was conducted Tuesday a.m. when we heard presentations from Dr. Lawrence Yun, Chief Economist of the National Association of REALTORS®, Dr. Mark Dotzour, Chief Economist, Real Estate Center at Texas A&M University, and KC Conway, Senior Credit Risk Officer, SunTrust Bank. That was followed by question and answer period by the audience.
The U.S. economy has made some recovery from the 2008 recession, but the recovery has taken longer and has been less robust than normal. The U.S. normally has had annual growth of 3% per year or more prior to the 2008 downturn. Our growth rate in 2013 – 2014 was barely 2.5%, in comparison; China is growing at a 7% rate.
The consensus is that the main lagging sector has been the housing industry and particularly new home construction. The three economists concurred that the Dodd Frank legislation enacted by Congress in President Obama’s first term is the culprit behind that sectors poor recovery. Dodd Frank has created a fear of lending by large banks to home builders. 70% of our population lives east of the Mississippi River, the home of the U.S. mega banks. The economists agreed that the Dodd Frank legislation needs to be repealed or amended before proper lending will be available for new home construction and robust commercial lending. The Federal Reserve Bank has been attempting to stimulate the economy with quantatate easing, which is no more than a fancy term for printing money and keep interest rates low.
Another consensus item was that the Federal Reserve Bank will begin raising interest rates sometime in 2015.
I will share other tidbits from the conference in future blogs as well as updates to the farmland market.
By Roger Heller, Accredited Farm & Land Broker