Farm Asset Planning and Transfer
Planning The Future of Your Farm
Farm Asset Planning
and Transfer
Andrew Branan, JD
Assistant Extension Professor
Department of Agriculture and Resource Economics
North Carolina State University
rabrana2@ncsu.edu
T
h
i
s
L
a
w
y
e
r
’
s
O
b
s
e
r
v
a
t
i
o
n
s
•
Try to avoid leaving land in “raw” co-tenancy
•
“Inheritance tax” is a non-issue; Medical/Elder Care debt is
•
All land dispositions must be in writing
•
Be careful of PUV when planning land disposition
•
Farm succession is a framework filled with execution events
•
Allow no one on your land without agritourism signage!
•
Let no one use your land without written agreement!
O
v
e
r
v
i
e
w
o
f
P
l
a
n
n
i
n
g
P
r
o
c
e
s
s
•
W
h
a
t
d
o
y
o
u
W
A
N
T
?
–
Your vision for your future
–
Vision for family
–
Land and business (legacy, heirloom, career opportunity)
•
W
h
a
t
d
o
y
o
u
H
A
V
E
?
–
Resources (liquid and not liquid)
–
Family resources, status and abilities
–
Current documents
–
Community Resources
•
W
h
a
t
d
o
y
o
u
N
E
E
D
?
–
Financial resources
–
Asset Transfer Plan
•
Estate plan, business organization (?)
•
Business disposition (transfer or liquidation)
R
e
a
l
P
r
o
p
e
r
t
y
1
0
1
•
Life Estate
–
Life tenant pays taxes, collects rents, no “waste”
•
Tenancy in Common
–
Undivided interest in entire parcel
•
Joint Tenancy with Rights of Survivorship
–
Rarity in land
–
Common with bank accounts and stock
•
Tenancy by the Entireties
–
P
r
o
p
e
r
t
y
p
u
r
c
h
a
s
e
d
d
u
r
i
n
g
l
e
g
a
l
m
a
r
r
i
a
g
e
•
Severed Interests
–
Timber
–
Hunting
–
farming
P
r
e
v
e
n
t
i
n
g
P
a
r
t
i
t
i
o
n
•
Tenant in common has right of partition land
–
Actual Division (§46-1
et seq)
–
Sale in Lieu of Partition (NCGS §46-22)
–
Life tenant may partition timber (NCGS §46-25)
•
LLC Operating Agreement restricts partition
•
Beneficiary of Trust
–
Limited to action against Trustee or Trust
•
Rights of First Refusal – maximum 30 years
–
requirement to deal before partition
–
Specific requirements (record Memorandum!)
A
s
s
e
t
P
r
o
t
e
c
t
i
o
n
:
“
I
d
o
n
’
t
w
a
n
t
t
h
e
n
u
r
s
i
n
g
h
o
m
e
t
o
g
e
t
m
y
f
a
r
m
”
•
Difficult to plan for poverty
•
Medicaid Rules: Qualifying vs. Recovery (lien)
•
5 Year “Look-back” Rule
•
Uniform Fraudulent Transfer Act (existing debt)
•
NC – only probate assets (but including land) subject to
recovery
D
u
r
a
b
l
e
P
o
w
e
r
s
o
f
A
t
t
o
r
n
e
y
(
N
e
w
S
t
a
t
u
t
e
)
•
T
h
e
N
C
H
o
t
P
o
w
e
r
s
a
r
e
p
o
w
e
r
s
t
o
–
Make a gift.
–
Create or change rights of survivorship.
–
Create or change a beneficiary designation.
–
Delegate authority granted under the power of attorney.
–
Waive the principal's right to be a beneficiary of a joint and
survivor annuity,
including a survivor benefit under a retirement plan.
–
Exercise fiduciary powers that the principal has authority to
delegate.
–
Renounce or disclaim property, including a power of
appointment.
D
i
s
p
o
s
i
t
i
o
n
b
y
G
i
f
t
•
Gifting of Land
–
Loss of right to rental/timber income
–
Carry-over basis (potential higher capital gains)
–
Exceed annual gift exclusion
–
Survey Costs and Subdivision Process
•
Piece-Gifting of Equipment
–
Bill of sale (non-titled equipment)
•
$15,000 annual exclusion
•
Lifetime gift exemption = $11,200,000 (2018)
•
$22,400,000 for married
D
i
s
p
o
s
i
t
i
o
n
a
t
D
e
a
t
h
:
B
y
W
i
l
l
•
W
i
l
l
d
i
r
e
c
t
s
b
e
q
u
e
s
t
s
(
p
e
r
s
o
n
a
l
)
a
n
d
d
e
v
i
s
e
s
(
r
e
a
l
)
p
r
o
p
e
r
t
y
•
Personal property listed in probate
•
Real Property not a probate asset (“drops like a stone”) (still
listed required to pay debts)
•
Executor power to sell property (NCGS §
32-26 & 32-27
)
Tradeoffs:
P
r
o
s
:
R
e
l
a
t
i
v
e
l
y
l
o
w
e
r
c
o
s
t
,
“
d
e
a
d
l
i
n
e
”
t
o
c
l
o
s
e
e
s
t
a
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e
,
p
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y
d
i
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d
n
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t
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g
s
a
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t
a
c
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e
d
,
m
a
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t
e
r
c
l
o
s
e
d
C
o
n
s
:
P
o
t
e
n
t
i
a
l
c
o
-
t
e
n
a
n
c
y
a
m
o
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d
i
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a
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a
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i
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,
d
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t
i
o
n
t
o
t
r
o
u
b
l
e
d
h
e
i
r
s
“All property to
spouse”
“If predeceased
by spouse, to
children share
and share alike
per stirpes”
“...share and
share alike”
D
i
s
p
o
s
i
t
i
o
n
b
y
T
r
u
s
t
•
Use as “will-substitute” to direct bequests and devises
–
Offers greater level of post-death administration
–
Easier to amend
•
Use to Protect Certain beneficiaries
•
Separate or Joint?
–
“It depends”
•
Use to step-up basis at death of first spouse
T
y
p
e
s
o
f
T
r
u
s
t
s
•
Testamentary Trust (in a will)
•
Revocable Trust
–
Fund during lifetime (put in, take out)
–
Fund through ‘pour over’ will
–
Amend as needed
•
Irrevocable Trust
–
Insurance Trust (ILIT)
–
“Asset-Protection”
•
Special Needs Trust
•
Charitable Trusts
•
“Dynasty” Trusts
T
r
u
s
t
F
e
a
t
u
r
e
s
f
o
r
F
a
r
m
s
/
F
o
r
e
s
t
•
Protect land/farm interests, income to surviving spouse,
use step-up basis flexibility
•
Consolidate personal property farm assets into entity or
to “farming heir”
•
Specific property distributions (“Equal”)
•
Options to Capture Title (“Fair and Equal”)
–
Options in favor of “farming heir” generally
•
Obligate Trustee to Lease Farm to farm heir
•
Allow Trustee to form LLC for land prior to distribution
(Supply terms)
A
s
s
e
t
s
t
o
P
l
a
c
e
i
n
R
e
v
o
c
a
b
l
e
T
r
u
s
t
•
Land interests
–
Record deed
–
File PUV application within 60 days
•
Business entity interests (land or operating)
–
Use transfer of death certificates
•
Assets in Trust not listed in Probate inventory
•
Trust as insurance beneficiary
T
r
u
s
t
C
h
a
l
l
e
n
g
e
s
/
O
p
p
o
r
t
u
n
i
t
i
e
s
•
Trustee Succession
–
Family “benches” sometimes not deep
–
Trustee oversight (trust protector or court)
–
Institutional trustee (need high liquid principal)
•
Protect farm assets from creditors or
remarriage or “whims” of surviving spouse
•
Use of portability and disclaimer
•
Specific Power to Decant
–
Power under state law (no good if Trustee is also
Beneficiary)
U
s
e
o
f
B
u
s
i
n
e
s
s
E
n
t
i
t
i
e
s
•
Liability protection (protect personal wealth, land)
•
Contract between owners
•
Income
•
Management
•
Equity
•
Buy-Sell (Manage the D’s: Death, Disability,
Divorce, Disaster, Disagreement,
Disengagement)
•
Vehicle for reducing parents’ estate value
•
Valuation discounts
•
Organized gifting or sale program
L
i
m
i
t
e
d
L
i
a
b
i
l
i
t
y
C
o
m
p
a
n
y
•
Operating LLC (or S Corp)
–
Partners contribute their ownership interest in cattle, bins, machinery,
“sweat” etc.
–
Use as transfer vehicle to farming heir (gifts/structured sale)
–
Existing S Corp or Partnerships (merger, conversion, asset transfer,
etc.)
•
Land LLC
–
Deed Land interest to the LLC (
never
a corporation)
–
Restrict membership
–
Strip partition rights inherit to real property interest
–
Structured exit of equity in land (title substitute)
–
Conversion of existing Limited Partnership (w/o retitle property) (SOS
filing)
T
h
e
O
p
e
r
a
t
i
n
g
A
g
r
e
e
m
e
n
t
•
A
C
o
n
t
r
a
c
t
b
e
t
w
e
e
n
c
o
n
t
r
i
b
u
t
o
r
s
o
f
a
s
s
e
t
s
•
Restricts who can be members
–
Member vs. Assignee
•
Dictates voting requirements for decisions
–
Manager
–
Voting and Non-voting Units
•
Dictates triggers for buy-sell
–
F
a
r
m
i
n
g
H
e
i
r
O
p
t
i
o
n
t
o
P
u
r
c
h
a
s
e
–
Who may buy and when
–
Appraisal procedure
–
Price and payment terms (seller finance option)
•
For existing S Corps, use Stock Purchase Agreement
T
r
a
n
s
f
e
r
o
f
L
L
C
I
n
t
e
r
e
s
t
s
•
Gift of Interest (measured in “units”)
–
Calculate value of company
–
Divide value by number of units to determine price
per unit
–
Transfer total units < $14,000 annual gift tax exclusion
•
Sale
–
Purchase from Other Members or Trust
•
Purchase with insurance proceeds under Buy-Sell
Agreement (Designate beneficiary and agreement between
all participants + spouses)
–
Spread capital gain over term note
–
Discounting of interest value
–
Some relief from Self Employment taxes
L
L
C
S
e
t
-
U
p
T
a
s
k
s
•
Sketch plan,
get accountant and lender sign-off
•
Form entity with Secretary of State (after Jan 1)
•
Get EIN (tax ID)
•
Open bank account
•
Elect S form 2553? (save on payroll tax)
•
Re-title over-road equipment with DMV
•
Update Contracts (or record DBA’s)
•
Update FSA payment entities
•
F
o
r
L
a
n
d
,
u
p
d
a
t
e
P
U
V
w
i
t
h
i
n
6
0
d
a
y
s
H
u
n
t
i
n
g
L
e
a
s
e
O
v
e
r
v
i
e
w
•
Description of Property
–
PIN, common name
–
Acreage
–
Exhibit areal photo of ’no hunting’ zones
•
Term (e.g. April 1 through March 31)
–
Auto renewal?
•
Hunting clubs
–
Copy of member rules
–
Incorporate violation as default
•
Deer blinds and structures
•
Liability Insurance?
T
i
m
b
e
r
T
r
e
s
p
a
s
s
•
N.C.G.S.§14-128. Willfull injury to trees is Class 1
Misdemeanor
–
NCDOT gets pass in RW
•
NCGS §1-539.1
–
Injured landowner entitled to double stumpage of
timber cut (cutting and burning)
–
Need a good boundary survey (mark boundary trees)
–
Timber harvester entitled to reimbursement from
landowner who misrepresents property lines
T
H
A
N
K
S
F
O
R
I
N
V
I
T
I
N
G
M
E
!
Robert “Andrew” Branan
Assistant Extension Professor
Department of Agriculture and Resource Economics
North Carolina State University
Campus Box 8109
4336 Nelson Hall
Raleigh, NC 27695
rabrana2@ncsu.edu
919 515 4670
This resource provides insights on farm asset planning, transfer, and succession, emphasizing the importance of careful documentation, financial resources, estate planning, and asset protection. It covers topics such as life estate, preventing partition, real property basics, and considerations for future farm sustainability.
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Presentation Transcript
Planning The Future of Your Farm Farm Asset Planning and Transfer Andrew Branan, JD Assistant Extension Professor Department of Agriculture and Resource Economics North Carolina State University rabrana2@ncsu.edu
This Lawyers Observations Try to avoid leaving land in raw co-tenancy Inheritance tax is a non-issue; Medical/Elder Care debt is All land dispositions must be in writing Be careful of PUV when planning land disposition Farm succession is a framework filled with execution events Allow no one on your land without agritourism signage! Let no one use your land without written agreement!
Overview of Planning Process What do you WANT? Your vision for your future Vision for family Land and business (legacy, heirloom, career opportunity) What do you HAVE? Resources (liquid and not liquid) Family resources, status and abilities Current documents Community Resources What do you NEED? Financial resources Asset Transfer Plan Estate plan, business organization (?) Business disposition (transfer or liquidation)
Real Property 101 Life Estate Life tenant pays taxes, collects rents, no waste Tenancy in Common Undivided interest in entire parcel Joint Tenancy with Rights of Survivorship Rarity in land Common with bank accounts and stock Tenancy by the Entireties Property purchased during legal marriage Severed Interests Timber Hunting farming
Preventing Partition Tenant in common has right of partition land Actual Division ( 46-1 et seq) Sale in Lieu of Partition (NCGS 46-22) Life tenant may partition timber (NCGS 46-25) LLC Operating Agreement restricts partition Beneficiary of Trust Limited to action against Trustee or Trust Rights of First Refusal maximum 30 years requirement to deal before partition Specific requirements (record Memorandum!)
Asset Protection: I dont want the nursing home to get my farm Difficult to plan for poverty Medicaid Rules: Qualifying vs. Recovery (lien) 5 Year Look-back Rule Uniform Fraudulent Transfer Act (existing debt) NC only probate assets (but including land) subject to recovery
Durable Powers of Attorney (New Statute) The NC Hot Powers are powers to Make a gift. Create or change rights of survivorship. Create or change a beneficiary designation. Delegate authority granted under the power of attorney. Waive the principal's right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan. Exercise fiduciary powers that the principal has authority to delegate. Renounce or disclaim property, including a power of appointment.
Disposition by Gift Gifting of Land Loss of right to rental/timber income Carry-over basis (potential higher capital gains) Exceed annual gift exclusion Survey Costs and Subdivision Process Piece-Gifting of Equipment Bill of sale (non-titled equipment) $15,000 annual exclusion Lifetime gift exemption = $11,200,000 (2018) $22,400,000 for married
Disposition at Death: By Will Will directs bequests (personal) and devises (real) property Personal property listed in probate Real Property not a probate asset ( drops like a stone ) (still listed required to pay debts) Executor power to sell property (NCGS 32-26 & 32-27) Tradeoffs: Pros: Relatively lower cost, deadline to close estate, property distributed no strings attached, matter closed Cons: Potential co-tenancy among disagreeable heirs, distribution to troubled heirs
All property to spouse If predeceased by spouse, to children share and share alike per stirpes ...share and share alike
Disposition by Trust Use as will-substitute to direct bequests and devises Offers greater level of post-death administration Easier to amend Use to Protect Certain beneficiaries Separate or Joint? It depends Use to step-up basis at death of first spouse
Types of Trusts Testamentary Trust (in a will) Revocable Trust Fund during lifetime (put in, take out) Fund through pour over will Amend as needed Irrevocable Trust Insurance Trust (ILIT) Asset-Protection Special Needs Trust Charitable Trusts Dynasty Trusts
Trust Features for Farms/Forest Protect land/farm interests, income to surviving spouse, use step-up basis flexibility Consolidate personal property farm assets into entity or to farming heir Specific property distributions ( Equal ) Options to Capture Title ( Fair and Equal ) Options in favor of farming heir generally Obligate Trustee to Lease Farm to farm heir Allow Trustee to form LLC for land prior to distribution (Supply terms)
Assets to Place in Revocable Trust Land interests Record deed File PUV application within 60 days Business entity interests (land or operating) Use transfer of death certificates Assets in Trust not listed in Probate inventory Trust as insurance beneficiary
Trust Challenges/Opportunities Trustee Succession Family benches sometimes not deep Trustee oversight (trust protector or court) Institutional trustee (need high liquid principal) Protect farm assets from creditors or remarriage or whims of surviving spouse Use of portability and disclaimer Specific Power to Decant Power under state law (no good if Trustee is also Beneficiary)
Use of Business Entities Liability protection (protect personal wealth, land) Contract between owners Income Management Equity Buy-Sell (Manage the D s: Death, Disability, Divorce, Disaster, Disagreement, Disengagement) Vehicle for reducing parents estate value Valuation discounts Organized gifting or sale program
Limited Liability Company Operating LLC (or S Corp) Partners contribute their ownership interest in cattle, bins, machinery, sweat etc. Use as transfer vehicle to farming heir (gifts/structured sale) Existing S Corp or Partnerships (merger, conversion, asset transfer, etc.) Land LLC Deed Land interest to the LLC (never a corporation) Restrict membership Strip partition rights inherit to real property interest Structured exit of equity in land (title substitute) Conversion of existing Limited Partnership (w/o retitle property) (SOS filing)
The Operating Agreement A Contract between contributors of assets Restricts who can be members Member vs. Assignee Dictates voting requirements for decisions Manager Voting and Non-voting Units Dictates triggers for buy-sell Farming Heir Option to Purchase Who may buy and when Appraisal procedure Price and payment terms (seller finance option) For existing S Corps, use Stock Purchase Agreement
Transfer of LLC Interests Gift of Interest (measured in units ) Calculate value of company Divide value by number of units to determine price per unit Transfer total units < $14,000 annual gift tax exclusion Sale Purchase from Other Members or Trust Purchase with insurance proceeds under Buy-Sell Agreement (Designate beneficiary and agreement between all participants + spouses) Spread capital gain over term note Discounting of interest value Some relief from Self Employment taxes
LLC Set-Up Tasks Sketch plan, get accountant and lender sign-off Form entity with Secretary of State (after Jan 1) Get EIN (tax ID) Open bank account Elect S form 2553? (save on payroll tax) Re-title over-road equipment with DMV Update Contracts (or record DBA s) Update FSA payment entities For Land, update PUV within 60 days
Hunting Lease Overview Description of Property PIN, common name Acreage Exhibit areal photo of no hunting zones Term (e.g. April 1 through March 31) Auto renewal? Hunting clubs Copy of member rules Incorporate violation as default Deer blinds and structures Liability Insurance?
Timber Trespass N.C.G.S. 14-128. Willfull injury to trees is Class 1 Misdemeanor NCDOT gets pass in RW NCGS 1-539.1 Injured landowner entitled to double stumpage of timber cut (cutting and burning) Need a good boundary survey (mark boundary trees) Timber harvester entitled to reimbursement from landowner who misrepresents property lines
THANKS FOR INVITING ME! Robert Andrew Branan Assistant Extension Professor Department of Agriculture and Resource Economics North Carolina State University Campus Box 8109 4336 Nelson Hall Raleigh, NC 27695 rabrana2@ncsu.edu 919 515 4670
