Business and Financial

By: Robert Moore, Thursday, February 02nd, 2023

Legal Groundwork

Farms are subject to more risks than ever before. Whether it’s the liability exposure of driving equipment on roadways or the potential of property loss due to a barn roof collapse, every farm has multiple sources of risk. While farmers can reduce their risk exposure through good business practices and rigorous safety protocols, there is no way to entirely eliminate inherent risks. For this reason, insurance policies that adequately protect against the multiple risks present is a necessity for farm operations. 

All farmers probably know the importance of insurance to protect their livelihood and their farm assets.  However, few farmers take the time to read and understand their insurance policy. The failure to read policies is not a result of apathy but more likely due to the almost unreadable nature of an insurance policy. Reading and understanding an insurance policy is difficult for anyone other than those in the insurance industry.

While each policy is unique, most farm policies do share some common terms or characteristics.  The following is a discussion explaining the more general parts of a farm insurance policy. Understanding the different parts of a policy and the concepts of the policy can help to better evaluate a policy to determine if it provides adequate coverage for a farm. 

An Insurance Policy Is a Contract

An insurance policy is a legal contract between an insurance company (the “insurer”) and the person or business entity being insured (the “insured”). The policy holds the insurer responsible for paying the insured for eligible claims. Furthermore, the contract requires the insured to meet certain obligations such as the timely reporting of claims. Once the policy becomes active, both the insurer and the insured are legally bound to the terms of the policy. This legal obligation is present even if the insured is unaware of some or all of the terms of the policy. It is the obligation of the insured to understand the policy. 

Structure of an Insurance Policy  

Most insurance policies contain the following sections: 

  • Declaration Page - identifies the person/entity insured and details about the policy
  • Insuring Agreement – summary of terms and conditions of the policy
  • Exclusions - specifically identifies what the insurance policy does not cover
  • Conditions - provisions that can limit an insurance company’s obligation to pay or perform
  • Endorsements and Riders - provisions that add, subtract, or modify the original insurance policy

What Does a Typical Farm Insurance Policy Cover?

Areas of Protection.  A typical farm policy includes the following areas of protection:

  • Liability
  • Home and contents
  • Farm personal property
  • Farm structures
  • Other additional coverages

A farm insurance policy typically covers both farm assets and household personal property. Having all assets covered under one policy is usually less expensive than having one policy for the farm assets and another policy for non-farm coverage. Noticeably absent from the above list are vehicles. A separate policy may be issued for the coverage of vehicles for both liability and property loss.

Liability Coverage.  Liability coverage protects against most risks associated with the farm operation such as bodily injury, medical expenses and property damages caused by accidents associated with the farming operation. Also, and sometimes just as importantly, the policy will cover attorney’s fees associated with defending the liability incidents.

Property Loss Coverage.  A farm policy will provide coverage for the loss of farm assets due to a covered peril. Farm assets are typically divided into two categories within the policy: personal farm property (machinery, grain, livestock) and farm structures. In the event of damage or destruction of a farm asset due to a covered peril, the insurance company will pay at least some, but necessarily all, of the value of the covered asset to the farm operation.

Types Of Coverage

Basic Coverage.  A policy that provides basic coverage is only going to cover the insured for named perils. If an event that is not named in the policy occurs, no coverage is provided. Common perils that are often included in basiccoverage are:

  • Fire
  • Lightning
  • Windstorm or Hail
  • Explosion
  • Smoke
  • Vandalism
  • Aircraft or Vehicle Collision
  • Riot or Civil Commotion
  • Sinkhole Collapse

Each of these perils will also include exceptions to coverage. For example, the Vandalism coverage usually excludes any buildings that have been vacant for more than 30 days. Again, any perils that are not expressly provided for are not covered under a basic coverage policy.

Broad Coverage.  Broad coverage is more expansive than basic coverage but is still limited to only the named perils. This type of coverage will include the perils identified in the basic coverage plus additional named perils. The additional perils covered by broad coverage often include the following:

  • Burglary/Break-in damage
  • Falling Objects (like tree limbs)
  • Weight of Ice and Snow
  • Freezing of Plumbing
  • Accidental Water Damage
  • Artificially Generated Electricity
  • Accidental Tearing Apart
  • Loading/Unloading Accidents

Like basic coverage, the broad coverage perils often include exceptions. An example of a broad coverage exception is freezing of plumbing may not be covered in a building which does not maintain heat.

Special Coverage.  Special coverage is the most comprehensive coverage available. Unlike basic and broad coverage, special coverage includes everything except the identified exceptions. Instead of identifying the perils covered, special coverage applies coverage to everything except what is specifically identified as an exception. Special coverage provides more comprehensive coverage because everything is included unless excepted. Remember, basic and broad coverage only applies to those perils expressly identified.

Special coverage may include many exceptions. For example, special coverage will likely include an exception for vandalism in buildings that have been vacant for 30 days. It is important to know what exceptions are included with special coverage.

Incorporation of Basic, Broad, and Special Coverage in The Insurance Policy

A policy may include one or more of the different types of coverages. For example, a policy may include specialcoverage on all farm machinery but broad coverage on all other personal property. It is important to know what assets are covered under which type of coverage. Special coverage is best for the most comprehensive coverage, but specialcoverage is also more expensive than basic and broad coverage. Weighing the additional cost of special coverage versus the benefit of comprehensive coverage provided is an important analysis to be done for each insurance policy.

 

In Part #2, we will discuss obtaining, managing and maintaining a farm insurance policy.

Posted In: Business and Financial
Tags: farm insurance, Insurance
Comments: 0
By: Robert Moore, Thursday, January 12th, 2023

Legal Groundwork

As farm machinery has become more complex and reliant on computer software, the right-to-repair issue has become a prominent issue in the farm community.  Farmers are sometimes prevented from repairing their own equipment because they do not have access to needed diagnostic tools or are otherwise barred due to embedded software.  Farmers have voiced their criticism of manufacturers as right-to-repair has become a prominent issue in the agricultural community.

In an effort to address the right-to-repair issue, the American Farm Bureau Federation (AFBF) and John Deere recently entered into a memorandum of understanding (MOU) in which Deere agrees to provide access to documentation, data and diagnostic tools used by the company’s authorized dealers.  This development was likely a response to pressure that Deere and other manufactures were under to allow right-to-repair.  New York recently passed a right-to-repair law and Senator Tester introduced right-to-repair legislation in the U.S. Senate earlier this year. 

 

Software User License

The issue of right-to-repair is related to a user’s license.  The term “license” has a specific meaning under the law.  Someone who holds a license for a product is allowed to use the product but does not own the product.  In 2016, Deere began using a user’s license for the software in its machines.  Essentially, when a customer would buy a machine from Deere, the buyer had ownership of the steel but did not own the software that makes the machine operate.    

Software licensing has its roots in 1980’s software.  The burgeoning consumer software industry initially sold its software to customers and retained no rights to the software.  These software developers began to see purchasers of their software reverse engineer the software and development slightly different software that resulted in the same functionality.  In essence, a person could buy the software, make a change to the software to potentially avoid copyright infringement, but end up with software that did the same thing as the originally purchased software.  This process essentially allowed for the stealing of intellectual property from the software developer, but the developers had little legal recourse.

To overcome this loss of intellectual property, software developers began selling a license to use the software.  The software license allowed the purchaser to use the software, but the software developer retained ownership.  The license agreement expressly prohibited reverse engineering or using the software in other ways that jeopardized the software developer’s intellectual property.  By keeping ownership,  software developers could take legal action against people who tried to copy and resell the software.

The software license worked reasonably well for many years.  The vast majority of software users were oblivious to the license agreement and continued using the software as they always had.  The licensing arrangement help protect the software developers’ intellectual property.  However, in the last twenty years or so, software began to be embedded in electronic devices blurring the lines between the software and the hardware. A new tractor seems to be as much a computer running software as it does a power unit pulling implements.  

 

Right-to-Repair

The integration of software into farm machines came to light in 2016 when John Deere implemented a software user license agreement to presumably protect its intellectual property.  Its licensing agreement clearly stated that reverse engineering or copying of the software is prohibited.  However, Deere seems to have taken it one step further.  Farmers and independent repair shops were prohibited from having the diagnostic tools and manuals required to make repairs.  This denial of diagnostic tools effectively made it impossible for farmers and independent mechanics to make repairs on some John Deere equipment.  Many people in the farm community expressed their concern about the license agreement and saw it as scheme to keep the repairs, and the fees from those repairs, all within the John Deere dealer network.  Farmers wanted to be able to repair their own equipment, or use other independent third parties, to potentially save money and to have more timely service, especially during busy times like planting and harvest.

Due to pressure from a combination of the new legislation in New York, the right-to-repair legislation introduced in the Senate and dissatisfaction expressed by farmers, John Deere likely felt it was best to make some concessions with farmers while keeping ownership of the software.  This speculation is supported by the fact that AFBF agreed to “refrain from introducing, promoting, or supporting federal or state "Right to Repair" legislation that imposes obligations beyond the commitments in this MOU.”  So, it seems AFBF agreed not to pursue right-to-repair legislation in exchange for Deere loosening its prohibitions of right-to-repair.

While it is impossible to foresee all the future implications for an agreement like the one between AFBF and Deere, it does seem that it is a reasonable compromise.  Farmers can now have access to diagnostic tools to allow for self-repairs while Deere keeps ownership of its software.  Critics argue the agreement does not go far enough and Deere still has too much control over self-repairs.  We will see over the next few years if the agreement is, in fact, a reasonable compromise.

 

Memorandum of Understanding

It is noteworthy that the agreement between AFBF and John Deere is memorialized within a Memorandum of Understanding.  For those not familiar with an MOU, there may be some curiosity as to its legal context.  MOUs are most often used at the beginning of a negotiation to ensure that both parties are starting with the same understanding of their current positions, to make clear what each party is seeking from the negotiation and that it is worthwhile for both parties to move forward.  Unlike a contract, an MOU is generally not legally enforceable.  Because the agreement is an MOU, neither AFBF nor Deere is legally bound to its terms.  Neither party has legal recourse if the other party does not honor its commitments as outlined in the MOU. If either party reneges on its commitments, the party at fault will likely receive criticism in the public opinion realm but will likely have no legal liability.

 

Conclusion

The John Deere software licensing issue is a good example of how new technology can require new strategies and concepts in the law.  Prior to the 1980’s, copyright law had worked just fine for books and movies but it did not work well for the new medium of software.  So, the concept of software licenses was developed to address the threats to the software industry. Twenty years later when the line between software and hardware began to blur, software licenses were again modified to protect the developer of the software.  In the case of John Deere, perhaps they went a bit too far in enforcing their licenses.  The threat of unfavorable legislation and criticism from customers probably caused John Deere to walk back their stance on prohibition of diagnostic tools to allow self-repairs.  Hopefully, the agreement between John Deere and AFBF has found a reasonable middle ground that benefits all parties.

 

 

Posted In: Business and Financial, Contracts
Tags: Right-to-Repair
Comments: 0
Ohio farm and Planning for the Future of Your Farm Webinar Series title
By: Peggy Kirk Hall, Friday, December 09th, 2022

We're happy to announce our popular “Planning for the Future of Your Farm” webinar series for 2023.  The four-part online series will be on January 23 and 30 and February 6 and 13 from 6:30 to 8:00 p.m. This workshop will help farm families learn strategies and tools for transferring farm ownership, management, and assets to the next generation.

Workshop topics

Here's what the webinar will cover:

  • Developing goals
  • Planning for the transition of management
  • Planning for the unexpected
  • Communication and conflict management during farm transfer
  • Legal tools and strategies
  • Developing your team
  • Getting your affairs in order
  • Selecting an attorney

Workshop faculty

You and your family will learn from two of Ohio's top farm transition experts:

  • Robert Moore, Attorney with our Agricultural & Resource Law Program. If you didn't already know, Robert was in private practice for 18 years before joining our program. He provided legal counsel to farmers and landowners across Ohio on business, farm transition, and estate planning. 
  • David Marrison, OSU Extension Field Specialist in Farm Management. David has been with OSU Extension for 25 years and is nationally known for his teaching in farm succession. He has a unique ability to intertwine humor when speaking about the difficulties of passing the farm on to the next generation. 

Registration

Because of its virtual nature, you can invite your parents, children, and grandchildren to the webinar, regardless of where they live in Ohio or across the United States. The webinar offers an easy way to include all family members in learning about how to develop a plan for the future of your family farm. 

Families must pre-register for the workshop by January 16, 2023 at go.osu.edu/farmsuccession.  We appreciate the support of the Ohio Corn & Wheat Growers Association in sponsoring the workshop and helping us keep the cost at $75 per farm family. The registration includes one printed set of materials that we'll mail to a family member, and other members will have access to electronic copies of the materials.

In-person workshops planned also

Several of our OSU Extension county educators are also hosting day-long in-person versions of the workshop on these dates:

Don't miss out

We hope you'll join us for this important series!  Even if you already have an estate plan or have begun one, this workshop should help you learn more and ensure that you're effectively addressing your goals for the future of your farm and farm family. 

For additional information David Marrison at marrison.2@osu.edu or 740-722-6073.

Starting a Food Business title with background of a baker, steak on a fork, granola
By: Peggy Kirk Hall, Tuesday, November 29th, 2022

Direct food marketing in Ohio is hot. The latest USDA survey identified 7,107 Ohio farms with direct food sales--third highest in the nation.  That might be why our program receives more legal inquiries about food sales than any other area of law.  And that is also why we’re hosting a three-part webinar series on “Starting a Food Business,” providing an introduction to what a producer needs to know about selling home-based and farm-raised foods directly to consumers and retailers.

The free webinar series will be from 7—9 p.m. on January 24, February 28, and March 28 in 2023, with these different topics each night:

  • January 24:  Start-Up Basics.  What do you want to sell?  We’ll review initial considerations for selling your food product.  We’ll cover food safety, licensing, legal, and economic considerations for starting up a food business.
  • February 28:  Selling Home-Based Foods.  Learn about food product development, Ohio’s Cottage Food and Home Bakery laws, and requirements for selling canned foods.
  • March 28:  Selling Meat and Poultry.  A look at the economics, processing options, and labeling and licensing requirements for selling meat and poultry.

Our teaching team for the webinar series includes:

  • Nicole Arnold, Asst. Professor and Food Safety Field Specialist for OSU Extension.  Nicole supports food handlers, consumers, and educators with food safety education and risk communication efforts.
  • Peggy Kirk Hall, Assoc. Professor and Agricultural Law Field Specialist for OSU Extension.  Peggy directs OSU Extension’s Agricultural & Resource Law Program and regularly teaches and writes on food laws.
  • Emily Marrison, OSU Extension Educator in Family and Consumer Sciences.  Emily’s food science background provides expertise and insight on food safety, product development, and selling home-based foods.
  • Garth Ruff, Beef Cattle Field Specialist for OSU Extension.  Garth has a background in animal science and specializes in livestock production and marketing, farm management, and meat science.

The webinar series is free, but registration is necessary.  Find details and the registration link at go.osu.edu/foodbusiness. 

Front page of Long-Term Care and the Farm guide
By: Peggy Kirk Hall, Tuesday, November 22nd, 2022

Long-term care costs are a threat to family farms.  In fact, we predict that long-term care costs are the biggest financial threat to farm families, even more so than federal estate taxes.  That’s because long-term care can affect every farm--and when cash or insurance runs out, farm assets may have to be sold to pay for long-term care.  With an increasing elderly population and rising health care costs, the financial pressure of long-term care on family farm succession will probably grow in future years.

What can farm families do to protect farm assets from the risk of long-term care?  Our latest publication by attorney Robert Moore, Long-Term Care and the Farm, addresses this question.  The publication begins with an important first step:  understanding long-term care risk.  What is the chance that a farmer will require long-term care, what kind of care is most common, and what how much will it cost?  Robert presents data and statistics that help us predict the expected type, length, and costs of long-term care services a farmer might require. 

Once we assess long-term care risk, the next important question is how to pay for long-term care while keeping farm assets secure.  Robert explains how Medicare and Medicaid programs can apply to long-term care costs.  He then presents several legal strategies to mitigate long-term care risk and protect farm assets. The guide wraps up with a process a farm family can follow to assess long-term care risk for their individual situation.

It's possible to keep family farmland and the family farm businesses safe from the risk of long-term care.  If long-term care is a concern for your farm family, be sure to read this important new publication and talk with an agricultural attorney about protection strategies. The publication is available at no cost through our funding partnership with the National Agricultural Law Center and the USDA National Agricultural Library.  Read Long-Term Care and the Farm here.

By: Robert Moore, Thursday, November 17th, 2022

Legal Groundwork

Sometimes, a business owner may find themselves in a position where they want to move from one business endeavor to another.  For example, the owner of XYZ Car Repair LLC decides to discontinue the car business and begin farming.  The owner would like to use their existing LLC to operate the new farming operation.  Is this possible?    

The answer is yes.  The same LLC (or any business entity) can be used to operate different businesses.  Using the example above, the owner could simply use XYZ Car Repair LLC for their farming operation.  While operating a farm under the name of a car repair business may be a bit odd, it is possible. Fortunately, the name of an entity can be changed.

An entity name can be changed by amending its Articles of Organization.  For an LLC, a Certificate of Amendment (Form 611) is filed with the Ohio Secretary of State requesting to change the name of the LLC.  If the new name is available and not in use by another entity, the request will be granted.  The name-change process involves filing a simple form online and paying a $50 fee. A similar method is used to change the name of other entity types.

If a name of an entity is changed, the IRS needs to be informed of the name change.  If the entity has not yet filed a tax return, a letter must be sent to the IRS informing it of the name change.  If the entity has already filed a tax return, the name change can be identified on the tax return.  Also, the bank that holds the entity’s bank account must be informed of the name change as well as all vendors.

In addition to changing the name, the purpose of the LLC may also need to be changed.  When an LLC is registered with the Ohio Secretary of State, a purpose may be included with the articles.  The purpose is sometimes used to limit the scope of the activities of the LLC.  If no purpose is identified, the LLC can engage in any lawful purpose.  Using the example above, assume the owners of the LLC included a purpose of “car repair and related business activity” for the LLC’s purpose.  Before the LLC is used for farming, the LLC’s purpose should be changed to “farming” or “any lawful” purpose.  The purpose identified on the articles of organization should match the actual operations of the LLC.  The purpose is found by searching the entity on the Ohio Secretary of State website.

There may be circumstances where it may be just as easy, or easier, to set up a new LLC rather than using the same LLC for a different purpose.  A new LLC can be registered with the Ohio Secretary of State for $99.  A new tax ID number can be obtained online for no cost.  It may be more convenient to establish a new entity rather than explaining to your bank and vendors that you have the same LLC with a different name.

To summarize the above discussion, it is possible to use an entity for a new business endeavor.  However, you may want to change the name and/or the purpose of the LLC, both of which can be done by filing an amendment to the Articles of Organization.  It is also worthwhile to explore establishing a new LLC for the new business as it may be easier than changing names and purpose.

Posted In: Business and Financial
Tags: business entities
Comments: 0
By: Peggy Kirk Hall, Tuesday, November 15th, 2022

Farmland can be a family's most important asset, recognized for both its heritage and financial value.  Here's some proof:  over 1,900 "Century Farms" in Ohio have been in the same family for over 100 years. And 130 of those farms have been in the same family for over two centuries -- testaments to the importance of farmland to Ohio families.

But there are threats that can cause farmland to leave a family despite its value to family members. Long-term care costs, divorce, debt, co- ownership rights, poor estate planning -- these are situations that can put family farmland at risk. The good news is that legal strategies can counter these threats. 

In our new publication, Keeping Farmland in the Family, we offer five legal tools that can help keep farmland in a family:

  • Agricultural or conservation easement
  • Right of First Refusal
  • Long-term lease
  • Limited Liability Company
  • Trust

These legal tools offer a range of protection for family farmland, allowing a family to use a highly restrictive strategy that protects land for many generations or a less restrictive approach that secures land only for a generation or two. Examples provided throughout the publication can help farm families see how different scenarios play out.  The guide does not intend to substitute for individual legal advice, but offers a family a starting point for discussion and decisionmaking with an agricultural attorney. 

Read Keeping Farmland in the Family here.  We were able to produce this publication with financial assistance from the National Agricultural Law Center and the USDA's National Agricultural Library.

 

By: Robert Moore, Friday, November 11th, 2022

Legal Groundwork

According to the last Census of Agriculture, about 87% of farms in Ohio are sole proprietorships.  This means that the vast majority of farms have no formal business structure.  However, we often hear of the need to have a business entity for liability protection, taxes or for a variety of other reasons.  So, how do you know if you need a business entity.

Like most legal answers, it depends.  LLCs and corporations can help with liability protection. These entities prevent the owners from having personal liability for the acts of the entity or anyone acting on behalf of the entity.  For example, if an employee of an LLC causes an accident driving equipment on a roadway, the owners of the LLC will not usually be personally liable.  The assets in the LLC are at risk but not the other assets outside of the LLC.

While LLCs do provide liability protection, they are no substitute for liability insurance.  The most important liability risk management strategy should always be a good liability insurance policy.  LLCs and corporations are good backup plans if the insurance policy does not cover the liability in some way.  Therefore, business entities can help with liability protection, but they are not a necessity like insurance.  Generally, the more owners and employees a business has, the more liability protection benefit an LLC or corporation will provide.

Business entities are often more valuable as a succession planning tool than they are for liability protection.  For example, land that is or will be owned by multiple family members is subject to the risks of partition.  Partition is the process where a co-owner of land forces the land to be sold as a way of “cashing out” their ownership in the land.  Land held in business entities is not subject to partition.  Those who own land with other people should strongly consider an LLC or other entity to protect against partition.

Business entities can be tax management tools as well.  For example, a sole proprietorship can only file taxes as a sole proprietor on a Schedule F or Schedule C.  That same sole proprietorship can convert to an S-Corp which often reduces self-employment tax liability.  Farm and business owners who seek the best fringe benefits such as health insurance and retirement benefits may want to be taxed as a C-Corp.  As these examples illustrate, business entities can provide tax management options that sole proprietorships do not.

Business entities do have several disadvantages.  One is the cost of establishing the entity.  The cost depends on the number of owners, the assets that will be put into the LLC and the terms of the governing document.  Establishing an entity can cost several thousand dollars or more in legal fees. Another disadvantage is managing the entity.  Each entity will need its own bank account, accounting, and tax return.  If an entity is not properly managed, it may not provide the expected liability protection or tax structure.

Liability management, succession planning and tax management are just a few of the many factors that should be considered when deciding if a business entity is worthwhile.  The best course of action is to meet with your attorney and accountant to assess the benefit that a business entity may have for your farm or business.  If the benefits outweigh the disadvantages, then you should strongly consider establishing a business entity.  If benefits do not outweigh the disadvantages, you may not need an entity and that is OK.  Many successful businesses are sole proprietorships and yours can be as well.

By: Robert Moore, Thursday, October 06th, 2022

Legal Groundwork

Business entity discounts can be a valuable tool in farm succession planning.  This strategy provides a method of reducing the values of assets that will be in an estate without the need for gifting.   Discounting can be used with any kind of entity; the key is to draft the entity’s controlling agreement to maximize the discount.

Discounting is based on two important factors: lack of marketability and lack of control.  Lack of marketability reflects the disinterest that an outside buyer would have in buying into a closely held entity.  Lack of control reflects the inability of an owner to singularly control the entity.  These two factors overlap somewhat but they essentially measure the discount that would be needed to make an arms-length buyer interested in buying an ownership interest in the entity.

The amount of discount is scrutinized by the IRS.  Owners of entitles have abused the discounting strategy in the past as a scheme to transfer ownership without incurring gift taxes or estate taxes.  A typical discount for an ownership interest that is fully subject to lack of marketability and lack of control may be around 35%.  Discounts in excess of 35% may be challenged by the IRS as excessive.  The discount is usually determined by an accountant or other financial professional that has expertise in determining business entity discounts.

Discounting can best be explained using examples.  Let’s say Mom and Dad own 400 acres of farmland valued at $3 million.  If Mom and Dad were to die with the land titled in their names, the land would be valued at $3 million in their estates.  The land is valued at its full value because either Mom or Dad can cause the land to be sold at any time through partition and they would presumably receive full, fair market value.

Now, let’s say Mom and Dad transfer the land into an LLC.  The LLC’s operating agreement includes the following provisions:

  • Land may not be sold without majority consent of ownership
  • Money cannot be distributed out of the LLC without majority consent
  • The LLC cannot be dissolved without majority consent
  • Ownership may only be transferred to the descendants of Mom and Dad

Additionally, Mom and Dad gift a 0.5% ownership interest to each Son and Daughter.  After the gift, Mom and Dad are each 49.5% owners of the LLC.   Now, neither Mom nor Dad can singularly control anything that happens with the LLC.  Due to the lack of marketability and lack of control created by the terms of the LLC operating agreement and the minority ownership (49.5%), Mom and Dad can expect to receive around a 35% discount on their ownership.

Using discounting, Mom and Dad have reduced the value of their estate by over $1 million by setting up an LLC and transferring their land to the LLC.  At a 40% estate tax rate, Mom and Dad have potentially saved Son and Daughter over $400,000 in estate taxes.  Entity discounts can same many thousands, if not millions, of dollars in estate taxes for some farm families.

The primary downside of using a business entity for discounts is the cost of establishing and maintaining the LLC.  An LLC will need to be established, an operating agreement drafted and deeds executed to transfer the land to the LLC.  Perhaps the initial startup and deed expense will be around $5,000.  The LLC will need to maintain a bank account to collect rent and pay expenses such as real estate taxes.  Additionally, the LLC will be required to file a tax return each year.  While there are startup and maintenance costs for the LLC, the savings in estate taxes usually makes establishing business entity discounts and easy decision.

It should be noted that some presidential administrations have sought to eliminate the entity discounts for family-held businesses.  So, the business entity discount can be abolished with a stroke of a pen at any time.  However,  as long as discounts are available, they can be a very valuable tool in farm transition planning.

For those farmers and landowners who may be concerned about estate taxes, a business entity may be a relatively simple but effective tool to reduce the value of the estate.  An attorney should be included in the process of establishing the LLC to be sure that the necessary provisions are included in the operating agreement to maximize the discount.  Also, a tax advisor should be consulted to ensure a thorough understanding of the tax ramifications of establishing an LLC. 

Picture of a tax return form.
By: Jeffrey K. Lewis, Esq., Thursday, August 18th, 2022

OSU Income Tax Schools 2022
Two-Day Tax Schools for Tax Practitioners &
Agricultural & Natural Resources Income Tax Issues Webinar 
Barry Ward & Jeff Lewis, OSU Income Tax Schools

Tax provisions related to new legislation as well as continued discussion related to COVID-related legislation for both individuals and businesses are among the topics to be discussed during the upcoming OSU Income Tax Schools offered throughout Ohio in October, November, and December. 

The annual series is designed to help tax preparers learn about federal tax law changes and updates for this year as well as learn more about issues they may encounter when filing individual and small business 2022 tax returns.

OSU Income Tax Schools are intermediate-level courses that focus on interpreting tax regulations and changes in tax law to help tax preparers, accountants, financial planners, and attorneys advise their clients. The schools offer continuing education credit for certified public accountants, enrolled agents, attorneys, annual filing season preparers and certified financial planners.

Attendees also receive a class workbook that alone is an extremely valuable reference as it offers over 600 pages of material including helpful tables and examples that will be valuable to practitioners. Summaries of the chapters in this year’s workbook can be viewed at this site:
https://farmoffice.osu.edu/tax/2022-tax-school-chapters

A sample chapter from a past workbook can be found at: 
https://taxworkbook.com/about-the-tax-workbook/

This year, OSU Income Tax Schools will offer both in-person schools and an online virtual school presented over the course of four afternoons.

In-person schools:

October 27-28, Ole Zim’s Wagon Shed, Gibsonburg/Fremont

October 31-November 1, Presidential Banquet Center, Kettering/Dayton

November 3-4, Old Barn Restaurant & Grill, Lima

November 8-9, Muskingum County Conference and Welcome Center, Zanesville

November 21-22, Ashland University, John C. Meyers Convocation Center, Ashland

November 29-30, Nationwide & Ohio Farm Bureau 4-H Center, Columbus

December 5-6, Hartville Kitchen, Hartville

Virtual On-Line School presented via Zoom:

November 7, 10, 14 & 18, 12:30 – 4:45 p.m.

Register two weeks prior to the school date for the two-day tax school early-bird registration fee of $400.  This includes all materials, lunches, and refreshments. The deadline to enroll is 10 business days prior to the date of each school. After the early-bird deadline, the fee increases to $450. 

Additionally, the 2022 Checkpoint Federal Tax Handbook is available to purchase by participants for a discounted fee of $60 each. Registration information and the online registration portal can be found online at:
http://go.osu.edu/2022tax

In addition to the tax schools, the program offers a separate, two-hour ethics webinar that will broadcast Thursday, Dec. 8 at 1 p.m. The webinar is $25 for school attendees and $50 for non-attendees and is approved by the IRS and the Ohio Accountancy Board for continuing education credit.

A webinar on Ag Tax Issues will be held Tuesday, Dec. 13 from 8:45 a.m. to 3:20 p.m.

If you are a tax practitioner that represents farmers or rural landowners or are a farmer or farmland owner that prepares your own taxes, this five-hour webinar is for you. It will focus on key topics and new legislation related specifically to those income tax returns.

Registration, which includes the Ag Tax Issues workbook, is $160 if registered at least two weeks prior to the webinar. After November 29, registration is $210. Register by mail or on-line at https://go.osu.edu/agissues2022.   

Participants may contact Ward at 614-688-3959, ward.8@osu.edu or Jeff Lewis at 614-247-1720, lewis.1459@osu.edu for more information.

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