Recent Blog Posts

By: Robert Moore, Thursday, September 15th, 2022

Legal Groundwork

When going through the estate planning process, determining and implementing the terms and conditions of the will or trust consume the most time.  However, some thought and consideration should be given to the Power of Attorney (POA) documents that are typically completed at the same time as the will or trust.  The POA documents designate who may act on behalf of someone who is alive but unable to act for themselves.   These documents are very important, especially for those people who are operating farms and businesses.

There are generally two types of POAs – financial and health care.  The financial POA is sometimes called a General Power of Attorney or Durable Power of Attorney.  Regardless of the name, the financial POA designates who may act (Agent) on behalf of the person who is incapacitated (Principal).   Most financial POAs give the Agent full authority to manage any and all assets owned by the Principal.  Due to this broad authority, the financial Agent has significant power and control and thus should be someone in whom the Principal has complete confidence and trust.

It is possible to limit the scope of authority for the financial POA.  Perhaps the Principal gives authority to the Agent to manage all assets except real estate so that the Agent cannot sell any of the Principal’s farmland.  Or, perhaps the Principal gives authority to manage all non-farm assets to one person and authority to manage all farm assets to another person.  The POA can be customized to meet the goals and objectives of the Principal.

One of the more important terms of the financial POA is when it become effective.  There are basically two options:  the POA can become effective when the Principal becomes incapacitated or become effective immediately upon execution of the POA.  Let’s discuss the advantages and disadvantages of each.

Having the POA become effective only when the Principal becomes incapacitated ensures that the Principal will maintain full control over their assets while they maintain capacity.  The Agent has authority over the Principal’s assets only after the Principal has become incapacitated.  Typically, incapacity is determined by a physician after an examination of the Principal.

A logical question is: why would you ever want your POA to become effective until you become incapacitated?  There are two reasons.  First, a person who becomes mentally incapacitated is usually the last person to know it.  That is, people with dementia or other mental problems will usually not admit they are unable to make decisions for themselves.  Additionally, getting the person who may be incapacitated to visit a doctor to be examined for incapacity may be very challenging.  So, making the POA effective upon signing may save the Agent much frustration and grief by not having to get an incapacity determination from a doctor.

Consider the following example.  Bill is not married and names his niece, Cathy, as his financial POA.  Bill has always been a little suspicious of everyone so he causes his POA to become effective only upon his incapacity.  Bill develops a medical condition where he becomes unconscious and thus is obviously incapacitated.  Cathy’s authority as Bill’s Agent becomes active and she can begin managing his assets and paying his bills.

Let’s change the scenario a bit to show why the time of effectiveness is important.  Bill starts to show signs of dementia and begins to make bad decisions with his money.  Bill starts giving his money away to unscrupulous people and making poor business decisions.  Cathy sees this happening but cannot convince Bill to see a doctor for a capacity determination.  The more Cathy asks about seeing a doctor, the more upset Bill becomes because “there is nothing wrong with me, it’s my money I can do what I want with it!”.  By the time Bill is actually deemed to be incapacitated by a doctor, much of his hard-earned wealth has been squandered.

The second reason to consider having the financial POA effective upon execution is convenience.  Sometimes, someone may be perfectly healthy but due to travel or a busy schedule may need someone to act on their behalf.

In this example, Bill has named Cathy as his POA and the POA is effective immediately.  Bill is in the process of selling a farm and the closing has been scheduled in the middle of Bill’s long-awaited vacation.  Instead of changing his vacation plans, Cathy can attend the closing and sign the documents on Bill’s behalf.

What if someone does not have a financial POA?  Without a POA, a guardian will likely need appointed for the incapacitated person.  A guardian is appointed by the probate court.  Family members can request to serve as the guardian, but it is ultimately up to the probate judge as to who will serve as the Agent.  Some attorneys serve as guardians.

Being a guardian can be challenging.  The guardian is required to take classes on the duties and obligations of being a guardian.  Also, an annual accounting must be provided to the court showing every dollar of income collected and every dollar spent.  It is much easier on friends and family to name them as the Principal in a POA rather than going through the process of having a guardian appointed by the court.

While financial POAs are relatively simple documents compared to a will or trust, they are nonetheless an important component of an estate plan.  It is best to have the POA drafted by an attorney to be sure the terms and conditions match the goals and objectives of the client.  Any adult who does not currently have a financial POA should get one at their earliest convenience to prevent their family and friends from having to deal with a guardianship.

In the next post we will discuss Health Care Power of Attorneys and Living Wills.

By: Robert Moore, Tuesday, September 13th, 2022

Legal Groundwork

We often think of farm leases in terms of an unrelated landowner leasing to an unrelated tenant.  However, leases can play an important role among related parties.  It is common practice to incorporate long-term leases into an estate plan to help protect the farming heir and help keep the land in the family.  In this article, we will discuss how and when to incorporate long-term leases into an estate plan.

Parents may find themselves in a situation where they would like an off-farm heir to inherit a farm but they also want to keep the land base together for the farming heir. The parents realize that the off-farm heir, upon inheriting the farm, could sell the farm or lease the farm to another farmer.  A long-term lease is one solution to this dilemna.

Consider the following example: Mom and Dad operate a dairy farm and own 500 acres.  They would like Andy, their son, to inherit Greenacre, a 100-acre parcel that sits next to the dairy operation.  Bill, their other son, will continue to operate the dairy operation after Mom and Dad’s death.  Bill must be able to farm Greenacre because it is critical to the dairy operation for corn silage production and for manure application.

This is a common example where the parents want an off-farm heir to inherit a farm but also realize that the farm is critical to the viability of the farm operation’s future.  If Andy inherits Greenacre without any conditions, he could simply sell or lease the farm to a neighbor, possibly causing Bill’s dairy operation to faulter.  Essentially, the ability for Bill to continue farming is contingent upon what Andy does with Greenacre.

A long-term lease may solve Mom and Dad’s dilemma.  Mom and Dad could have Andy inherit Greenacre but require him to lease it back to Andy for a term of years.  This allows Andy to inherit the farm but protects Bill’s land base for his dairy operation.

Using the same example as above:  Mom and Dad establish a trust.  The trust gives Greenacre to Andy but as a condition of him receiving Greenacre he must lease it to Bill for 20 years.  The trust also provides other lease terms including how the lease rate is determined and occasionally updated.

Mom and Dad have now met both goals:  Andy received Greenacre and Bill can continue to use Greenacre for his dairy operation. Bill will pay rent to Andy for the use of Greenacre for the term of the lease.

When using long-term leases, a common question is: how long should the lease be?  Generally, the lease should be long enough to protect the farming heir’s farming career.  This may cause the lease to be 10 years long or perhaps the lease will be 50 years long. 

When using long-term leases, we need to consider the effect on the off-farm heir.  The off-farm heir, in reality, has little control over the land because the lease essentially makes the land unmarketable.  Few people will want to buy a farm that has a 20-year lease on it.  Therefore, the off-farm heir receiving the farm may be disappointed that the only benefit they receive from the land during the term of the lease is a lease payment.  Using the example above, if Andy thought he could immediately sell Greenacre and build his dream house in Florida he is going to be disappointed.  

Using long-term leases to keep the land base together for the farming heir significantly impedes the off-farm heir’s ability to control the land they receive.  However, for many farm families, allowing for a viable farming operation for future generations is of prime importance and limiting the off-farm heir’s ability to control their own farm may be a necessary outcome.  It also may be beneficial for Mom and Dad to inform the off-farm heir that their land will be subject to a lease to avoid disappointment and surprises.

Like all estate planning strategies, long-term leases are another tool in the estate planning toolbox.  For some plans, long-term leases should be kept in the toolbox.  For other plans, long-term leases may be a critical part of the estate plan. The impact on both the farming heir and the non-farming heir is an important factor when considering using long-term leases in a succession plan.  Be sure to consult with an attorney to determine if a long-term lease may be right for you.

Posted In: Estate and Transition Planning
Tags: long-term lease
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Red barn and wooden fence with anti-solar sign
By: Peggy Kirk Hall, Friday, September 09th, 2022

The siting of renewable energy projects on Ohio farmland is a divisive issue these days, pitting neighbors against neighbors and farmers against farmers.  Some support expanding renewable energy capacity while others oppose losing productive farmland or changing the rural landscape.  A common question arising in this conflict is this: when can a county or township say “no” to a proposed renewable energy development?  Several new laws, old laws, and recent court cases can help answer this question, although the answer is not always clear.

The “public utility exemption” from zoning.  A long-standing provision of Ohio law that limits county and township land use power is the “public utility exemption” from zoning. Ohio Revised Code Sections 303.211(counties) and 519.211 (townships) specifically state that counties and townships have no zoning authority “in respect to the location, erection, construction, reconstruction, change, alteration, maintenance, removal, use, or enlargement of any buildings or structures of any public utilities.” The historical reason for this exemption is to keep local regulations from interfering with the provision of public utility services to Ohio residents.  But what is a “public utility”?  The exemption does not define the term, leaving Ohio courts to determine what is and is not a public utility on a case-by-case basis.  More on that later.

New powers in Senate Bill 52.  Effective in October of 2021, Senate Bill 52 gave new powers to county commissioners over certain renewable energy developments, setting aside the “public utility exemption” in those situations.  The new law states that counties can designate restricted areas where wind and solar development is prohibited and can prohibit an individual proposed wind and solar facility or limit its size.  These new powers, however, apply only to facilities with a single interconnection to the electrical grid and beyond a certain production size.  For solar facilities, that size is 50 MW or more of energy production and for wind facilities, it’s 5 MW or more. Facilities that aren’t connected to the grid or are beneath those amounts are not subject to the new powers granted in S.B. 52.  Additionally, facilities that had reached a certain point in the state approval process aren’t subject to the new law.  Several Ohio counties have already established restricted areas or worked with townships to determine whether the county will approve individual projects as they come forward.

Authority over “small wind farms.”  New wind power development in Ohio a decade ago led to the “small wind farm” provision in Ohio Revised Code Sections 303.213 (counties) and 519.213 (townships).  This law allows counties and townships to use their zoning powers to regulate the location and construction of publicly and privately owned “small wind farms,” regardless of the public utility exemption.  A “small wind farm” is any wind turbine that is not subject to Ohio Power Siting Board jurisdiction, meaning that it produces less than 5 MW of energy.  Some counties and townships have utilized this provision of law to establish setback distances for wind turbines in residential areas.

The “bioenergy” exemptions.  Yet another Ohio law limits county and township zoning authority over bioenergy facilities.  Found in the “agricultural exemption from zoning” statute, Ohio Revised Code Sections 303.21(C) (counties) and 519.21(C) (townships) states that county and township zoning cannot prohibit the use of any land for biodiesel production, biomass energy production, electric or heat energy production, or biologically derived methane gas production if the facility is on land that qualifies as “land devoted exclusively to agricultural use” under Ohio’s Current Agricultural Use Valuation program and if, for biologically derived methane gas, the facility does not produce more than 5 MW or 17.06 million BTUs of energy.  Ohio now has several facilities that fit within this exemption from zoning authority.

Two recent cases examine when a renewable energy facility a “public utility.”  The “public utility exemption” from county and township zoning was at issue in two similar Ohio cases concerning biodigesters, facilities that process manure and other solid wastes into methane gas that is used to generate electricity.  The most recent is Dovetail Energy v. Bath TownshipThe township claimed that the Dovetail biodigester located on farmland in Greene County was an “industrial use” that violated township zoning regulations.  The owners argued that the biodigester was exempt from township zoning under both the “public utility” exemption and the “bioenergy” exemption. 

The case reached the Second District Court of Appeals, which focused a large part of its analysis on the issue of whether the biodigester is a “public utility” that is exempt from township zoning under Ohio Revised Code 519.211.  Relying on earlier cases from the Ohio Supreme Court, the court explained that an entity is a public utility if “the nature of its operation is a matter of public concern” and if “membership is indiscriminately and reasonably made available to the general public” as a public service. 

The court analyzed the “public service” and “public concern” factors for the Dovetail biodigester, examining first whether Dovetail provides a public service, which requires a showing that the facility indiscriminately provides essential goods or services to the public, which has a legal right to demand or receive the goods or services, and that the goods or services can’t be arbitrarily withdrawn.  Because Dovetail generates electricity that is sold into the wholesale energy market and used to provide energy to local utilities and customers and because Dovetail is also required to provide renewable energy credits that it cannot arbitrarily or unreasonable withdraw, the court concluded that the facility is a “public service.”

Factors determining whether Dovetail’s operation is also a matter of “public concern” that the court analyzed included whether Dovetail “serves such a substantial part of the public that its rates, charges and methods of operation become a public concern.” The court looked to Ohio’s incentives for renewable energy development, the lack of competition in the electric grid, the “heavy” regulatory environment for Dovetail, and its payment of public utility taxes as indications that Dovetail and the energy it produces are “public concerns.”  Meeting both the “public service” and “public concern” components, the appeals court agreed with the lower court’s ruling that Dovetail is a public utility and is exempt from Bath Township zoning regulations.

The Dovetail decision echoes an earlier decision in the Fifth Appellate District, Westfield Township v. Emerald Bioenergy, where the appellate court examined a biodigester on farmland in Morrow County and found that the township could not regulate it because it is a “public utility.”  The court cited factors such as Emerald’s provision of electric to the general public through interconnection agreements that distribute the energy to the energy grid, its lack of control over which customers receive or use the energy, its renewable energy credit requirements that can’t be arbitrarily or unreasonably withdrawn, its acceptance of waste from any customer, its governmental regulations and oversight, and its public utility taxes.  The court also noted that it need not address the “bioenergy” exemption because it found the enterprise to be a “public utility.”

Both townships in the Dovetail Energy and Emerald Bioenergy cases requested a review of the decision by the Ohio Supreme Court.  But the Supreme Court decided not to hear either case, although several of the justices dissented from that decision in each case.  Without further review by the Supreme Court, the appellate court decisions stand.

What do these cases mean for solar energy facilities under 50 MW?  Recall that S.B. 52 allows counties to prohibit or restrict solar facilities that are 50 MW or higher, but no other law addresses solar facilities with a single interconnection point to the energy grid that produce less than 50 MW.  Would such a facility be a “public utility” under the public utility exemption?  As with Dovetail and Emerald, a court would have to examine the solar facility and determine whether “the nature of its operation is a matter of public concern” and if “membership is indiscriminately and reasonably made available to the general public” as a public service.  If so, a county or township could not use zoning to prohibit or regulate the location or construction of the solar facility. 

Learn more about renewable energy laws in the Farm Office Energy Law Library at https://farmoffice.osu.edu/our-library/energy-law.

Ohio farm and rural road
By: Peggy Kirk Hall, Wednesday, September 07th, 2022

Farm neighbor laws have been around nearly as long as there have been farm neighbors.  From trees to fences to drainage, farmers can impact and be impacted by their neighbors.  In the spirit of managing these impacts and helping everyone get along, our courts and legislatures have established a body of laws over the years that allocate rights and responsibilities among farm neighbors.  Explaining these laws is the goal of our new series on farm neighbor laws. 

Here’s a timely farm neighbor problem that we’ve heard before: Farmer’s soybeans are looking good and Farmer is anxious for harvest.  But some neighbors drive their ATV into the field and flatten a big section of Farmer’s beans.  What can Farmer do about the harm? 

Ohio’s “reckless destruction of vegetation law” might be the solution. The law, Ohio Revised Code Section 901.51, states that “no person, without privilege to do so, shall recklessly cut down, destroy, girdle, or otherwise injure a vine, bush, shrub, sapling, tree, or crop standing or growing on the land of another or upon public land.” This law could provide a remedy if its three components fit Farmer’s situation:

  1. Recklessness
  2. Destruction or injury to a vine, bush, shrub, sapling, tree, or crop on the land of another
  3. No privilege

A key requirement of the law is “recklessness.”  Under Ohio law, a person is “reckless” if the person acts with heedless indifference to the consequences or disregards the risk that the person's conduct is likely to cause a certain result.  For example, if the neighbors were out driving the ATV at night and simply didn’t care where they were and that their actions could be harming Farmer’s property, that behavior is likely to rise to the level of “recklessness.”  Alternatively, if another driver ran the neighbors off the road and the neighbors tried but could not avoid going into the bean field, their behavior isn’t likely to be deemed “reckless.”

A second requirement is destruction or injury to vegetation on another’s land.  In the unlikely event that Farmer’s soybeans aren’t actually injured or destroyed, the law wouldn’t apply.  Note that the law doesn’t just apply to a crop like soybeans, but also includes other vegetation such as vines, bushes, shrubs, and trees, recognizing that all of these types of vegetation have value for a landowner.

The final requirement is “without privilege to do so.”  Privilege in the context of this law means “permission.”  As long as Farmer didn’t tell the neighbors they could drive their ATV through his field, Farmer could prove that the neighbors did not have privilege or permission to cause the destruction and injuries to Farmer’s beans.

So what?  The law clearly prohibits the neighbors from recklessly destroying Farmer’s beans, but what happens if they do?  The law also addresses this question by stating that a violator of the law is liable “in treble damages.” Attorneys always take notice of treble damages language because it requires the damages award to be tripled after a judge or jury determines the amount of the actual harm. This tripling of damages is intended to punish the person for their “recklessness.”  So, if a jury decided that the value of Farmer’s lost beans is $1,000, the treble damages would result in a $3,000 award against the neighbors due to their reckless destruction of Farmer’s crop.

There is also a criminal element to the law.  The law states that a violator is also guilty of a fourth-degree misdemeanor. That would require a criminal proceeding by the local law enforcement, and the result could be no more than 30 days in jail and up to $250 in fines.

If the reckless destruction law doesn’t apply, Farmer would need to look to other mechanisms for resolving the harm.  If the neighbors were trespassing, trespass laws could provide a remedy but wouldn’t award treble damages.  Or the Farmer’s property insurance might address the harm. But if the neighbors destroyed Farmer’s beans by behaving recklessly, the reckless destruction of vegetation law can help resolve this farm neighbor issue.

Find the “reckless destruction of vegetation” law at Ohio Revised Code Section 901.51.

By: Robert Moore, Thursday, September 01st, 2022

Legal Groundwork

In prior posts, we discussed Long-Term Care (LTC) costs and the risks that those costs can have on keeping farm assets in the family.  For those people needing LTC, the average cost is around $150,000.  However, some people will require nursing home services for many years which could cause costs to be $500,000 or more.  A strategy some people implement to protect their assets from LTC costs is gifting.  We will discuss both the advantages and disadvantages of gifting.

The idea behind gifting is to transfer the assets to children or other beneficiaries before the assets must be spent on LTC costs.  The person transferring the assets is intentionally trying to make themselves lack the resources to take care of themselves and rely on Medicaid to pay for their care.  This strategy sounds simple, but it has many aspects, both good and bad, that must be considered.

First, Medicaid imposes a penalty for improper transfers.  An improper transfer is any transfer of an asset for less than fair market value.  Medicaid looks back five years for any improper transfers and disqualifies the applicant for one month for each $6,905 of improper gifts made.  Improper transfers prior to the five-year lookback period are not penalized.  

For example, if a gift of $100,000 was made in the last five years, the applicant will be ineligible for Medicaid for 15 months after application.  If a gift of $1,000,000 was made, the applicant will wait five years to apply for Medicaid and then will not be required to report the gift because the five-year penalty period expired.

In addition to overcoming the five-year look back period, making a gift requires the owner to give up all ownership and control, including income produced by the gifted asset.  This creates the risk that the original owner cannot protect the gifted asset from financial or legal mishaps of the person receiving the gift.  This risk is a significant factor that should be considered when contemplating a gift.

Consider the following example.  Dad owns 200 acres of land and is concerned he will be forced to sell the land if he incurs LTC costs.  To protect the land, Dad gifts the land to Daughter.  After Daughter receives the land, she causes an automobile accident and is liable to the injured party for $1,000,000.  Her auto insurance only covers $250,000 in liability so she must sell some of the land received from Dad to pay the injured party. 

This example illustrates the risk of giving up ownership and control of assets when gifting.  In future articles we will discuss strategies to overcome this risk using irrevocable trusts and/or LLCs.

Tax implications are another factor to consider when gifting.   The IRS allows large gifts to be made without a gift tax being owed provided a gift tax return is filed.  Instead of taxing the gift, the IRS reduces the giftor’s federal estate tax exemption by the value of the gift which is reported on the gift tax return.  Also, the person receiving the gift receives the same tax basis as the giftor rather than receiving a stepped-up tax basis to fair market value if they were to receive the same asset as an inheritance. 

Using the same example as above, the value of the land gifted to Daughter was $2,000,000.  Dad would file a gift tax return and his federal estate tax exemption would be reduced from $12,060,000 to $10,060,000.  No tax is owed but Dad’s estate exemption limit is reduced by the amount of the gift.  Let’s assume Dad paid $200,000 for the farm when he first bought it.  Daughter will receive the farm with a $200,000 tax basis.  If she would have inherited the farm instead, she would have received the farm with a $2,000,000 tax basis.  The loss of stepped-up tax basis when gifting is a significant factor to consider.

For a thorough discussion on the tax implications of gifting, see the law bulletin “Gifting Assets Prior to Death” at go.osu.edu/farmplanning.

The biggest benefit of a gifting strategy is its simplicity. Land can be transferred with a simple deed, money can be transferred by check,  and machinery and livestock can be transferred with simple paperwork.  It is usually relatively easy to transfer assets by gift.  Also, the gifting can be done quickly to get the five-year lookback period started.

Gifting assets is one of several strategies to protect assets from LTC costs.  While the process of gifting is relatively easy, the implications of gifting are significant and extensive.  Anyone considering a gifting strategy to protect assets should consult their legal and tax advisors to determine if gifting is the best strategy.

 

Solar panels iand corn growing in a field in Ohio
By: Peggy Kirk Hall, Wednesday, August 31st, 2022

Solar and wind energy development is thriving in Ohio, and most of that development will occur on leased farmland.  Programs in the newly enacted federal Inflation Reduction Act might amplify renewable energy development even more.  The decision to lease land for wind and solar development is an important one for a farmland owner, and one that remains with a farm for decades.  It’s also a very controversial issue in Ohio today, with farmers and community residents lining up on both sides of the controversy.  For these reasons, when a landowner receives a “letter of intent” for wind or solar energy development, we recommend taking a careful course of action.  Here are a few considerations that might help.

Purpose and legal effect of a letter of intent.  Typically, a letter of intent for renewable energy development purposes is not a binding contract, but it might be.  The purposes of the letter of intent are usually to provide initial information about a potential solar lease and confirm a landowner’s interest in discussing the possibility of a solar lease.  Unless there is compensation or a similar benefit provided to the landowner and the letter states that it’s a binding contract, signing a letter of intent wouldn’t have the legal effect of committing the landowner to a solar lease.  But the actual language in the letter of intent would determine its legal effect, and it is possible that the letter would offer a payment and contain terms that bind a landowner to a leasing situation.

Attorney review is critical.  To ensure a clear understanding of the legal effect and terms of the letter of intent, a landowner should review the letter with an attorney.  An attorney can explain the significance of terms in the letter, which might include an “exclusivity” provision preventing the landowner from negotiating with any other solar developer for a certain period of time, “confidentiality” terms that prohibit a landowner from sharing information about the letter with anyone other than professional advisors, “assignment” terms that allow the other party to assign the rights to another company, and initial details about the proposed project and lease such as location, timeline, and payments.  Working through the letter with an attorney won’t require a great deal of time or cost but will remove uncertainties about the legal effect and terms of the letter of intent.

Negotiating an Option and Lease would be the next steps. If a landowner signs a letter of intent, the next steps will be to negotiate an Option and a Lease.  It’s typical for a letter of intent to summarize the major terms the developer intends to include in the Option and Lease, which can provide a helpful “heads up” on location, payments and length of the lease.  As with the letter of intent, including an attorney in the review and negotiation of the Option and Lease is a necessary practice for a landowner.  We also recommend a full consideration of other issues at this point, such as the effect on the farmland, farm business, family, taxes, estate plans, other legal interests, and neighbor relations. Read more in our “Farmland Owner’s Guide to Solar Leasing” and “Farmland Owner’s Solar Leasing Checklist”.

New laws in Ohio might prohibit the development.  A new law effective in October of 2021 gives counties in Ohio new powers to restrict or reject wind and solar facilities that are 50 MW or more in size.  A county can designate “restricted areas” where large-scale developments cannot locate and can reject a specific project when it’s presented to the county. The new law also allows citizens to organize a referendum on a restricted area designation and submit the designation to a public vote. Smaller facilities under 5-MW are not subject to the new law.  Several counties have acted on their new authorities under the law in response to community concerns and opposition to wind and solar facilities.  Community opposition and whether a county has or will prohibit large-scale wind and solar development are additional factors landowners should make when considering a letter of intent.  Learn more about these new laws in our Energy Law Library.

It's okay to slow it down.  A common reaction to receiving a letter of intent is that the landowner must act quickly or could lose the opportunity.  Or perhaps the document itself states a deadline for responding.  A landowner shouldn’t let those fears prevent a thorough assessment of the letter of intent.  If an attorney can’t meet until after the deadline, for example, a landowner should consider contacting the development and advising that the letter is under review but meeting the deadline isn’t possible.  That’s a much preferred course of action to signing the letter without a review just to meet an actual or perceived deadline.

For more information about energy leases in Ohio, refer to our Energy Law Library on the Farm Office website at https://farmoffice.osu.edu/our-library/energy-law.

By: Robert Moore, Friday, August 26th, 2022

Legal Groundwork

In a prior blog post, we discussed whether a will or trust might be needed for an estate plan.  Another common question is: what is an irrevocable trust and do I need one?  Irrevocable trusts have their place in estate planning but not everyone needs one nor should everyone have one.

Most trusts are revocable trusts.  These types of trusts can be amended or revoked by the grantor (creator) any time until the time of death.  Additionally, assets can be transferred into and out of the trust at will by the grantor.  In essence, a revocable trust is one and the same as the grantor until the grantor passes away. 

An irrevocable trust is what its name implies – once established, it cannot be changed except for a few notable exceptions.  There are different kinds of irrevocable trusts but the most common is used to protect assets from nursing home costs and/or creditors.  For this article, we will focus on an irrevocable trust to protect assets from nursing home costs.

The idea of the irrevocable trust is to transfer the assets to be protected into the trust.  After transferring the assets to the trust, the original owner has no further ownership or control of the asset.  The owner has also given up all rights to receive the assets back from the trust. Because the original owner cannot have access to the protected assets, neither can a nursing home or creditor.  Note: assets are not protected from a nursing home until five years after the date of the transfer.

When the trust is established by the original owner, they will name a trustee for the trust.  The trustee has the legal duty to manage and oversee the trust and trust assets.  The trustee must follow the terms of the trust but otherwise has no duty to the original owner.  The trustee can be anyone other than the original owner.  The trustee is often a child or children of the owner.

The trust can be set up with specific requirements.  For example, the original owner may state that the trustee does not have authority to sell any farmland held by the trust.  The trustee must follow the directives of the irrevocable trust.  Also, the irrevocable trust will act just like a revocable trust at the original owner’s death.  That is, the same distribution plan provisions that might be included in a revocable trust and can be included in an irrevocable trust.

Let’s look at an example to help explain how an irrevocable trust works:

Mom and Dad own 300 acres of farmland that has been in the family for many generations.  They also own some retirement accounts and investments.  They are concerned that if one or both go into a nursing home, they may run out of money and be forced to sell land to pay for their care.

Mom and Dad establish an irrevocable trust and transfer the 300 acres into the trust.  They name Son and Daughter as co-trustees of the trust.  The trust terms include a provision that the land cannot be sold while Mom and Dad are alive.  At Mom and Dad’s death, the trust requires the Smith Farm to go to Son and the Jones Farm to go to Daughter with a right of first refusal to each other.

Ten years after they set up the irrevocable trust, Mom and Dad go into a nursing home.  After being in the nursing home for a few months, they run out of money to pay for their nursing home care.  The nursing home cannot foreclose on the land to be paid.  Mom and Dad do not own the land and the 5-year penalty period has expired.  Because Mom and Dad own no assets, they will likely be eligible for Medicaid assistance for their nursing home care.

Upon Mom and Dad’s death, the trust’s distribution plan will cause the Smith Farm to go to Son and the Jones Farm to go to daughter with the right of first refusal.

As the example shows, an irrevocable trust can protect assets against nursing home costs and creditors.  It can also act as part of the estate plan by including distribution provisions for the heirs and beneficiaries upon death.

The biggest disadvantage of an irrevocable trust is that it cannot be undone.  Upon the assets being transferred into the irrevocable trust, they will never be owned by the original owner again.  Deciding upon an irrevocable trust requires the owners to give up full ownership and control of the assets.  This can be a difficult decision for the owner, especially for farmers giving up ownership of their land.

The best candidates for irrevocable trusts are typically older, retired farmers who no longer need their land for collateral to buy other land or assets.  For farmers who are still actively farming and may need their land for collateral, an irrevocable trust may hinder the growth of their farming operation.  Before establishing an irrevocable trust, be sure to talk to an attorney about the advantages and disadvantages of an irrevocable trust to determine if it is the best strategy for you.

September 1 calendar
By: Peggy Kirk Hall, Wednesday, August 24th, 2022

September 1 is fast approaching, and this year it’s an especially important date for landowners leasing cropland under an existing lease that doesn’t address when or how the lease terminates.  In those situations, September 1 is the new deadline established in Ohio law for a landowner to notify a tenant that the landowner wants to terminate the lease.  If the landowner does not provide notice by September 1, the lease continues for another lease term. 

This September 1 deadline only applies to verbal or written leases that don’t have a termination date or a deadline for giving notice of termination.  If a crop lease already includes a termination date or a deadline for giving notice of termination, those provisions are unchanged by the new law. The new September 1 termination date also only affects leases of land for agricultural crops.  It does not apply to leases for pasture, timber, farm buildings, horticultural buildings, or leases solely for equipment.

To meet the new legal requirements, a landowner must give the notice of termination in writing and deliver it to the tenant operator by hand, mail, fax, or email on or before September 1.  While the law does not specify what the termination must say, we recommend including the date of the notice, the identity of the lease property being terminated, and the date the lease terminates, which the law states will be the earlier of the end of harvest or December 31, unless the parties agree otherwise.

Tenant operators are not subject to the new September 1 termination deadline—the law applies only to the landowner.  Even so, it’s important for tenant operators to understand the new law because it protects a tenant if a landowner attempts to terminate a lease after September 1.  In those instances, the law allows the tenant to continue the lease for another term because the termination notice was late.

A lesson this new law teaches is the importance of having a written farm lease that includes termination provisions. The parties can agree in advance when the lease will terminate or can set a deadline for notifying the other party of the intent to terminate the lease.  Such terms provide certainty and reduce the risk of conflict and litigation over a “late” termination.

Read the new “termination of agricultural leases” law in Section 5301.71 of the Ohio Revised Code.

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.

By: Robert Moore, Tuesday, August 16th, 2022

Legal Groundwork

A common question when starting the estate planning process is: do I need a will or trust?  There are a number of factors that must be considered before this question can be answered.  A trust is a common estate planning tool but not everyone needs one.  Often times, the best plan includes only a will.

The following are some of the factors to consider when deciding between a will or trust:

Complexity of Plan

The more complicated the plan, the more likely a trust is needed.  Complexity might include addressing on-farm and off-farm heirs issues, buy out of assets at discounts with installment payments, long-term leases, options, right of first refusals and so on.  Wills are much more suitable for plans where all the assets go equally to the beneficiaries without much complexity.

The average person can usually implement an effective estate plan without a trust.  However, most farmers are not average people.  Farmers tend to have more assets, more complex assets, on-farm and off-farm heir issues and business succession issues.  Farmers tend to need trusts much more than non-farmers.

Avoiding Probate

Any asset that is controlled by the will goes through probate.  Probate can cause estate administration to be slower, more burdensome and more costly.  Assets that are controlled by a trust are not subject to probate.  Avoiding probate is generally a good strategy for estate planning.

Most probate can be avoided even without a trust.  All titled assets can include payable on death or transfer on death designations.  For example, bank accounts can include payable on death beneficiaries which allow the funds to go to the beneficiaries upon the death of the owner without going through probate.  Assets without titles can only avoid probate by using a trust.  These untitled assets include grain, crops, livestock and machinery.  For farmers owning large amounts of these untitled assets, a trust may be needed to avoid probate.

Concerns About Heirs

Sometimes, there may be concerns about how an heir might manage their inheritance.  Maybe they have poor spending habits, have a drug/alcohol problem or are heavily in debt to creditors.  Trusts can hold assets for beneficiaries and allow the assets to be managed by a trustee, all outside of probate.  Wills can also hold assets in a trust but will involve the probate court, making managing the trust more cumbersome.  For people who may have concerns about how their heirs might manage their inheritance, a trust is likely a better option than a will.

Second Marriages

A trust is often a good strategy for married couples who have children from previous marriages.  A trust allows the deceased spouse to provide for the surviving spouse while ensuring that those assets ultimately end up with the deceased spouse’s children.  Wills tend to leave everything to the surviving spouse then to children.  A will plan could cause both spouse’s assets to only go to the surviving spouse’s children.  Trusts are often the better option for second marriages.

Transition of Farming Operation

As stated above, crops, livestock and machinery can only avoid probate by using a trust.  Sometimes, these assets get stuck in probate for some time and cause problems for continuing the farming operation. Farmers with large amounts of grain, crops, livestock and machinery should consider a trust for their estate plan.

Legal Fees.

Wills generally have the advantage on legal fees.  Trusts, being more complicated documents, typically cost more to set up than wills.  The cost difference can be several thousands of dollars.  If minimizing legal fees for the estate plan is a priority, a will may be the better option.  It is important to note that spending more money on a trust may save the beneficiaries even more by making the estate administration easier and more efficient.  Spending a few thousand dollars more on a trust may save many thousands of dollars on estate administration.

 

The above factors are just a few of the many factors to consider when deciding between a will or trust.  For many people a will is completely adequate for an estate plan but for many farmers a trust is the better option.  An estate planning attorney will be able to assist with determining which strategy is better.  For a more thorough discussion on wills, trusts and other aspects of estate planning, see the Planning for the Future of Your Farm bulletin series at go.osu.edu/farmplanning.  

 

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