Estate Planning

By: Evin Bachelor, Wednesday, June 19th, 2019

Have you ever sent an email or text message that seemed perfectly clear to you, but the recipient read it differently than you had intended?  It happens all the time in everyday life.  We know what we mean in our head, but the message we send contains ambiguities.  While we can hopefully fix ambiguities in an email or text message quickly, wills can present a different story. 

Once a person has passed away, fixing an ambiguity in a will is not easy because the best person to ask about intent cannot be called to testify.  Unfortunately, many families learn about the problems posed by ambiguities the hard way.

Take a recent example from Mahoning County.  In April, an Ohio appellate court upheld a probate court’s decision on how to distribute the assets of a Salem area farmer (“the farmer”).  This happened five years after the farmer passed away, and after two appeals of his estate.  He had a will, but it contained an ambiguity that resulted in years of litigation and delayed closure. 

His will made one specific bequest, and the rest of his property would go into a general pot for his named beneficiaries to divide among themselves as they or the executor saw fit.  The specific bequest read, “I give, devise, and bequeath to my brother […], the real estate at […] together with all contents of said real estate, if owned by me at the time of my death.”  The court had no problem with the real estate because the will provided an address; however, what did the will mean by “all contents of said real estate”?

At the time of the farmer’s death, the real estate contained a residence, family heirlooms, valuables, household goods, farm equipment, and vehicles.  The brother argued that the specific bequest included farm equipment and vehicles because of their physical presence on the real estate.  The general beneficiaries disagreed, believing that the bequest applied to pieces of personal property like heirlooms within the house.  Looking only at the will, the probate court agreed with the general beneficiaries.  The brother appealed the decision.

The appellate court viewed “all contents of said real estate” as ambiguous, and sent the case back to the probate court to re-examine the will.  The law generally disfavors testimony about what a decedent intended because the law assumes that the will provides the best evidence of what the decedent wanted.  When a court finds an ambiguity in a will, it may consider evidence beyond the will, such as testimony or other documents; however, the law considers this evidence less authoritative because it is not directly from the decedent.

After the first appeal, the brother and attorney who drafted the farmer’s will testified in probate court about conversations with the farmer before he passed away.  The brother claimed that conversations with his brother about ideas to grow the farm meant that the farm equipment should go to him; however, the attorney claimed that the farmer intended only for the brother to receive family heirlooms within the house.  The court believed the farmer’s attorney, and again decided that the specific bequest did not include the equipment.

For a second time, the brother appealed the probate court’s decision.  This time the appellate court was satisfied with the probate court’s actions and upheld the probate court’s interpretation of the will.  Click HERE to read the court’s opinion, which is cited as Bogar v. Baker, 2019-Ohio-1762 (7th Dist.).

It took the family in the Bogar case five years to have a legal determination of what their loved one meant in his will.  One clause resulted in lots of costly litigation, not to mention the stresses on the family.

No family wants a contentious probate.  Losing a loved one is hard enough without having to go to court to fully litigate the contents of a will.  Fortunately, this is a problem that can be avoided, or at least minimized, with an effective plan. 

Here are some tips to minimize ambiguities in your will:

  • Identify who you want to have specific pieces of your real and personal property.  For personal items such as family heirlooms, antiques, and art, you may leave a directive that names specifically which person receives what items.
  • Read through your will.  Does it make sense to you?  Does it sound like what you want to happen?
  • Consider showing your will to your executor and ask what he or she thinks your will says.  How would the executor carry out your will if you were gone today?  If he or she says something that you did not intend, you can still fix your will to more clearly align it with your wishes.
  • If you are concerned about beneficiaries challenging your will, you can include a no-contest clause that gives the executor final authority to interpret how to distribute your estate and penalize beneficiaries who challenge that distribution.  When included in a will, these clauses often prevent a beneficiary who challenges a will from receiving any property from the estate.

These tips do not guarantee a challenge-free probate process, but can help make your will as clear as possible.  If a question about your intent would still arise, having a couple of witnesses who can attest to your wishes will help the court get as close to your wishes as possible.  However, this requires you to tell each of these people the same thing and in a clear manner.  If you make any changes, you need to communicate that to your confidants.

Stay tuned in the next couple of months for new resources from our team about estate and business transition planning.  Until then, take a moment to review your estate plan!

Posted In: Estate Planning
Tags: Estate Planning, wills, Ohio case law
Comments: 0
By: Evin Bachelor, Monday, June 10th, 2019

The biennial budget remains the center of attention for members of the Ohio General Assembly, but some other bills have made progress since our last legislative update.  We will post a separate blog post about the biennial budget soon, but for now here is a review of other legislative activity at the statehouse. 

New legislation since our last legislative update

  • Senate Bill 159, titled “Grant tax credits to assist beginning farmers.”  This bill is essentially the same as House Bill 183, which seeks to provide tax incentives to beginning farmers along with those willing to help them build a farm operation.  Introducing the bill in the Senate while the House considers another bill allows the process to potentially go more quickly.  Instead of waiting on the House to complete all of its committee hearings and approve the bill, the Senate can start its own process.
  • House Bill 223, titled “Alter setback-wind farms of 5 or more megawatts.”  In 2014, the Ohio General Assembly modified the distance that wind turbines must be setback from an adjacent property line.  House Bill 223 would modify the setback law to base the setback on the distance from the nearest habitable residential structure on a neighboring property instead of the property line.  The setback requirement would affect future project certificates, as well as any amendments made to an existing certificate.  Click HERE for more information about the bill from the Ohio General Assembly’s website.

Legislation that we continue to follow

Here’s a status update on bills we covered HERE in March and HERE in April.  Access each bill’s webpage on the Ohio General Assembly website by clicking on the bill number in the following tables. 

 

Legislation passed by the Senate and currently under consideration in the House

Category

Bill No.

Bill Title

Status

Hemp

SB 57

Decriminalize hemp and license hemp cultivator

- Passed Senate

- Passed House Ag & Natural Resources committee

- Awaits vote of the full House of Representatives

Regulations

SB 1

Reduce number of regulatory restrictions

- Passed Senate

- Referred to House State & Local Government Committee

Business Law

SB 21

Allow corporation to become benefit corporation

- Passed Senate

- Referred to House Civil Justice Committee

 

Legislation going through the committee process, but not yet passed in either chamber

Category

Bill No.

Bill Title

Status

Watershed Planning

SB 2

Create state watershed planning structure

- Completed third hearing in Senate Ag & Natural Resources Committee

Tax

HB 183

Allow tax credits to assist beginning farmers

- Completed second hearing in House Ag & Rural Development Committee

Estate Planning

HB 209

Abolish estate by dower

- Completed third hearing in House Civil Justice Committee

Animals

HB 24

Revise humane society law

- Passed House Ag & Rural Development Committee

- Awaits vote of the full House of Representatives

Oil and Gas

HB 55

Require oil and gas royalty statements

- Completed first hearing in House Energy & Natural Resources Committee

Mineral Rights

HB 100

Revise requirements governing abandoned mineral rights

- Completed first hearing in House Energy & Natural Resources Committee

Energy

SB 119

Exempt Ohio from daylight savings time

- Completed first hearing in Senate General Government and Agency Review Committee

Local Gov’t

SB 114

Expand township authority-regulate noise in unincorporated areas

- Completed second hearing in Senate Local Government, Public Safety, & Veterans Affairs Committee

Property

HB 103

Change law relating to land installment contracts

- Completed second hearing in House Civil Justice Committee

Regulation of Alcohol

HB 160

Revise alcoholic ice cream law

- Completed third hearing in House State & Local Government Committee

Regulation of Alcohol

HB 179

Exempt small wineries from retail food establishment licensing

- Completed first hearing in House Health Committee

 

Legislation not on the move

These bills have not made much progress.  The biggest action taken on each so far has been referring the bill to a committee, but no committee has yet to hold a hearing on any of the bills.  Remember that we are in the middle of budget season, and only in the first six months of this legislative cycle, so the bills could still see activity later.

Category

Bill No.

Bill Title

Status

Animals

HB 124

Allow small livestock on residential property

- Referred to House Ag & Rural Development Committee

Animals

HB 33

Establish animal abuse reporting requirements

- Referred to House Criminal Justice Committee

Energy

HB 20

Prohibit homeowner associations placing limits on solar panels

- Referred to House State & Local Government Committee

Local Gov’t

HB 48

Create local government road improvement fund

- Referred to House Finance Committee

Local Gov’t

HB 54

Increase tax revenue allocated to the local government fund

- Referred to House Ways & Means Committee

Oil and Gas

HB 94

Ban taking oil or natural gas from bed of Lake Erie

- Referred to House Energy & Natural Resources Committee

Oil and Gas

HB 95

Revise oil and gas law about brine and well conversions

- Referred to House Energy & Natural Resources Committee

Regulation of Alcohol

HB 181

Promote use of Ohio agricultural goods in alcoholic beverages

- Referred to House Ag & Rural Development Committee

Tax

HB 109

Grant tax exemption for land used for commercial maple syruping

- Referred to House Ways & Means Committee

 

By: Evin Bachelor, Wednesday, March 27th, 2019

Sometimes you happen upon a question that you want an answer to, and the answer you find raises more questions.  That’s exactly what happened when we started examining Limited Liability Company (LLC) statutes from across the Midwest.

Originally, we wanted to determine whether there are any significant legal differences between the LLC statutes of different states.  While we may be based in Ohio, we find projects that examine how different states compare to one another on the same legal topic fascinating.  The comparisons allow us to see trends and different ideas, and we had the chance to do this in our recently completed projects on CAUV and agritourism.

Ultimately we found the Midwestern states to have functionally similar LLC statutes, with about half of the Midwest having adopted a uniform statute.  When a state adopts a uniform statute, it intends for its law on a given topic to match those of other states with the same uniform statute.  There are other examples of these like the Uniform Commercial Code, Uniform Probate Code, and more.  Uniform codes are designed to make it easier for people to do business and live their lives across state lines.  For Midwestern LLC statutes, even in states that have not adopted a uniform statute, the key elements are still very similar.  The statutes have filing procedures for creating the entity, default rules for operating agreements, and rules that govern LLCs in general.

When we answered our questions about the state statutes, we became curious about some of the benefits offered by using an LLC instead of some other business form.  We found that LLCs offer great liability protection, with some specific limitations such as the application of piercing the veil from corporate law.  Further, pass through taxation can provide great tax benefits and avoid double taxation.  Since states allow operating agreements to be highly customizable, LLCs also provide a flexible entity structure that may be adapted to suit the needs of a business or family.

That last word led us to another question: what benefits does the LLC structure offer a family farm in its estate and business transition plan?  The previous three benefits are well known and thoroughly discussed; however, this last one, while done a lot in practice, is not commonly mentioned in academic writing.  Ultimately, the benefits in estate and transition planning come from the flexible nature of the operating agreement.

How can LLCs be helpful in an estate and business transition plan for a farm?  Here’s a few ways:

  • Restrict the transfer of an ownership interest through rights of first refusal and buy-out provisions
  • Restrict membership and voting power of non-family members
  • Transition equity ownership more easily than in a corporation
  • Transition the business in relative privacy

Once we learned about these benefits, the question arose of how common farming LLCs now are.  Using data from the USDA’s Census of Agriculture, we found that by 2012, there were almost as many farms organized as LLCs as there were farms organized as corporations, while the vast majority of farms remained owned outright by individuals with no formal legal entity.  We are waiting for the next Census of Agriculture to spot any trends, because 2012 was the first year that farms were asked to identify whether they were organized as LLCs.

Throughout the paper, we made some observations and predictions for what we expect to see in the future.  We are also history buffs, so of course there had to be a section on the origins of the LLC, and why Wyoming was the first state to adopt an LLC statute.  It is an interesting and dramatic history that we had not heard about before.

Our project examining farm LLCs is available on our OSU Extension Farm Office website HERE, as well as the National Agricultural Law Center’s website HERE.  This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.

By: Peggy Kirk Hall, Friday, January 06th, 2017

Many Ohioans choose to avoid the probate process by using a transfer on death designation. Since 2000, Ohio has permitted property owners to use transfer on death designations to transfer property upon the owner’s death. In 2009, Ohio law allowed property owners to make transfer on death designations with an affidavit instead of by designation on a deed. The new Ohio law forces the automatic termination of transfer on death affidavits for changes in marital status.

The new changes took effect on December 13, 2016 when the Governor signed Senate Bill 232 into law. Under Senate Bill 232, a transfer on death designation made either by a deed or by an affidavit to a spouse terminates upon a divorce, dissolution, or annulment.  The new law applies to new and pre-existing transfer on death designations.

Because the law applies to pre-existing transfer on death designations, it may be a good time for property owners to revisit their estate plans. Property owners should be aware of the effect of divorce, dissolution, or annulment on their transfer on death designations.

The Ohio Legislative Service Commission’s analysis of Senate Bill 232 is available here. More information on transfer on death designations is available from the Ohio State Bar Association here

Posted In: Estate Planning, Property
Tags:
Comments: 0

The Ohio legislature has approved a repeal of the Ohio estate tax, but the tax will remain in effect for another 18 months.  The new law removes the Ohio estate tax obligation for any person who dies on or after January 1, 2013.  Governor Kasich signed the provision into law on June 30, 2011 as part of the state's budget package.  The final version of the repeal differed from the language proposed earlier this year in H.B. 3, which proposed ending the estate tax as of January 1, 2011 (see our earlier post).

A bill introduced in the Ohio House of Representatives proposes a complete repeal of the Ohio estate tax.  Representatives Grossman and Hottinger introduced H.B. 3 on January 11, 2011. The bill is simple:  it amends the estate tax provisions currently in Ohio law to state that the tax provisions apply only to estates of persons who died before January 1, 2011. Regardless of when the bill would become effective, persons dying after January 1, 2011 would not be subject to the estate tax. The bill also removes the estate tax return filing requirement for estates of persons dying after the January 1, 2011 date. 

The Ohio estate tax is a graduated tax on a person's gross taxable estate, less deductions and exemptions.  An estate valued at less than $338,333 pays no tax due to credits and exemptions included in the law.  Estates between the value of $338,334 and $500,000 pay a 6% estate tax while estates over $500,000 in value owe a 7% estate tax.  The state receives 20% of the estate tax revenue and the local government of the decedent's residence receives the remaining 80% of the tax.  Ohio is one of 17 states that have an estate tax.

How is agriculture affected by the Ohio estate tax?  It's not uncommon for a farm estate to be valued at the taxable threshold of $338,334.  However, qualifying farm properties that elect the special use valuation option in the estate tax law can further reduce the taxable amount of the estate up to an additional $500,000.  The special use valuation election provides that qualifying farmland will be valued at the lesser Current Agricultural Use Valuation amount; qualifications for the election relate to keeping the farm in the family.  Sound planning and proper use of special use valuation thus can reduce the Ohio estate tax burden for farms that intend to continue the farm business after the loss of an active farm family member.

The idea to repeal the estate tax is not a new one; several prior attempts have not met with success.  A bill identical to current H.B. 3 was proposed last year, but the bill never made it out of the House Ways and Means committee.   Will the change in Ohio's elected officials yield different results?  The current House Ways and Means committee will hear sponsor testimony on the H.B. 3 at its hearing on January 26, 2011.View H.B. 3 here.

Posted In: Estate Planning
Tags: Estate Planning, Ohio estate tax
Comments: 0

Transition Incentives Program aims to help new and disadvantaged farmers obtain land.

The Farm Bill's new Transition Incentives Program (TIP) is now available in Ohio.  The addition to the Conservation Reserve Program (CRP) will provide rental payments to transition CRP land from a retired farmer to a beginning or socially disadvantaged farmer who returns the land to sustainable production.  TIP received $25 million in funding from the 2008 Farm Bill.  Program supporters hope the funds will enable beginning and socially disadvantaged farmers to obtain affordable land for agricultural production.

Here's how the program will work:

  • The CRP landowner must be a "retired" or "retiring" landowner.
  • The CRP contract must expire on or after September 30, 2010, but there is an exception for certain contracts that expired in 2008 and 2009. 
  • The landowner must enroll all or a portion of the CRP land in TIP by the enrollment deadline.   Contracts expiring in 2010 and eligible 2008 and 2009 contracts must be enrolled by September 30, 2010.  Later contracts must be enrolled during the last year of the contract.
  • The new or socially disadvantaged farmer or rancher must develop a conservation plan for the TIP land.
  • By October 1 of the CRP contract expiration year, the landowner must agree to sell or lease (for a minimum of five years) the land to a non-family "beginning" or "socially disadvantaged" farmer or rancher and must allow the farmer to make improvements on the land in accordance with the approved conservation plan.
  • The beginning or socially disadvantaged farmer must return the land to production using sustainable grazing or crop production methods.
  • The beginning or socially disadvantaged farmer will be eligible to enroll the land in continuous CRP, Conservation Stewardship Program or Environmental Quality Incentives Program, with a waiver of the provision requiring 12 months of continuous ownership.
  • The landowner will receive up to two additional CRP annual rental payments if all TIP requirements are met.

A few important definitions:

  • A "retired or retiring" owner is one who has ended active labor as a crop producer, or plans to do so within five years of the TIP arrangement.
  • A "new or beginning farmer or rancher" is one who has been farming for less than ten years and who will materially participate in the operation of the TIP land.  If an entity, at least 50% of the entity's members or stockholders must meet the ten year, material participation requirements.
  • A "socially disadvantaged farmer or rancher" is a member of a group that has been subject to racial or ethnic prejudice.  Examples include American Indians, Alaskan Natives, Asians, Asian-Americans, Blacks, African Americans, Hispanics.  Unlike other federal programs, this definition does not encompass gender prejudice; hence, women do not qualify as socially disadvantaged for purposes of the TIP program.

A few questions arise when considering whether there will be interest in TIP.  Are there sufficient incentives for the CRP landowner to transition the land, are there connections between CRP landowners and beginning or socially disadvantaged farmers, and how will the rental payment affect the purchase or lease price for the land?  Ohio will soon have an indication of program interest, with the first enrollment deadline of September 30, 2010 quickly approaching.

For more information on TIP, visit the FSA site.

Since 2000, Ohio law has allowed property owners to avoid the probate process with a transfer on death deed, a deed that automatically transfers real property to a designated beneficiary upon the death of the property owner.   Under a new Ohio law, such transfers now require the preparation of an affidavit rather than a transfer on death deed.  The new law also allows those who hold "survivorship rights" in property to transfer their rights upon death, which the previous law prohibited. 

The changes occurred in S.B. 124, which became effective upon the governor's signature on December 28, 2009.  The Ohio State Bar Association's Real Property Law Section proposed the changes to simplify the transfer on death process and remove confusion over the rights of those holding survivorship deeds. 

See the bill and its changes to Ohio Revised Code Chapter 5302  here.     The Legislative Service Commission's analysis of S.B. 124 is available here.   Visit this website for a good summary of the law.

One “trust mill” is on its way out of Ohio, thanks to a recent ruling by the Ohio Supreme Court.  On October 14, 2009, the Court issued a hefty $6.4 million penalty against American Family Prepaid Legal Corp. and its affiliate, Heritage Marketing and Insurance Services, Inc.   The Court barred the companies from doing business in Ohio. The California-based companies targeted elderly Ohioans by offering a full array of estate planning services that would allegedly minimize estate probate costs.  Non-attorney salespeople contacted elderly persons and marketed a $1,995 prepaid estate plan, which essentially amounted to one living trust.  Upon delivery of the living trust to client homes, the salespersons also marketed insurance products.  The sales were high-pressure, according to the Court.  Credit must be given to the Columbus Bar Association for pursuing the case.  After receiving repeated complaints about the companies, the CBA investigated and determined that the companies were condoning the unauthorized practice of law.  While an attorney in California drafted the trust documents, non-attorney salespersons interacted with the clients, provided legal information, and answered legal questions. The Supreme Court had no sympathy for the companies and their sales scheme, and accurately described the “trust mill” issue that causes much frustration and concern in the legal profession.  Said the court:

"A living-trust package is often not needed and may even be harmful for persons who are without significant assets, who have simple estates, or whose estates may need court supervision.  A basic living-trust package...may even be insufficient and completely inappropriate for those having more substantial assets and who may need specific legal advice and even tax advice to meet their needs. ... [t]hese enterprises, in which the laypersons associate with licensed practitioners in various minimally distinguishable ways as a means to superficially legitimize sales of living-trust packages, are engaged in the unauthorized practice of law...by facilitating such sales, licensed lawyers violate professional standards of competence and ethics."

A misfortune of the case is that the companies have declared bankruptcy and ceased operations.  The Columbus Bar Association is exploring whether it can collect the fine from another insurance company owned by the father-son team behind the defunct companies.  The CBA hopes to distribute any amounts it collects back to victims of the trust scam.  To read the court's opinion, visit here.

Subscribe to RSS - Estate Planning