To create a great distribution plan for your Ohio farm, you need to maximize what you’ve got to distribute. If you plan poorly, harsh taxes and aggressive creditors can drain the estate, leaving you with little to pass on to your heirs. To that end, let’s explore tactics for how to maximize what stays in the estate.
1. Consider forming a limited liability company (LLC). An LLC is a very flexible, customizable legal tool that can help farmers shield their assets and enjoy immediate benefits. When your farm has been organized an as LLC, you can create a Buy Sell Agreement to allow active heirs to buy out the interests of passive heirs. In some ways, LLCs function as a cross between a corporation and a partnership. They can reduce your estate taxes, limit your liability, and help you maintain control over what happens with the farm now and in the future. You can also enjoy estate tax minority and marketability discounts. If each of your children owns a piece of the LLC, they can be legally shielded during the sale of any of the farm’s assets or during other legal proceedings (such as a premises liability lawsuit). Using gift ownership interests, you can slowly pass the farm to your children after you retire to reduce the size of your future estate, thus limiting its tax liabilities and maximizing how much your children (and other heirs) can receive. Currently, the lifetime exemption is $5 million plus the annual gift tax exclusion of $14,000 per year, per person. If you have a large farm and multiple children, you can completely eliminate the estate tax.
2. Use a Special Use Valuation to minimize your farm property's value (for tax purposes). Qualified farmers can also use a tool known as special use valuation, which will allow your property to be evaluated as farm land (instead of at fair market value) to reduce the estate's tax liabilities.
3. Conservation easements can also help you distribute more to those you love. You could also qualify for conservation easements, which can preserve your land and also net the farm estate tax deductions and income tax deductions.
4. With an irrevocable life insurance trust, generate liquid cash to pay off the farm's debts. A vehicle known as an irrevocable life insurance trust can help you pay off any estate taxes that the farm owes after you die. This is useful because many of your farm's assets may not be liquid: they're tied up in farm property or in the business itself (or its products). Having a life insurance trust to meet the estate's tax burden can be useful and simplifying. For help getting clear about what you need to do to ensure a smart and equitable distribution plan for your Ohio farm, call the team here at Gudorf Law Group, LLC immediately to arrange a confidential consultation with us. Call us now at 1-877-483-6730.