Exit & Succession Strategies for BOLD Farmers and Ranchers

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Disclosure

This information is a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.

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Agenda

• What is BOLD?• The BOLD Process• Exit & Succession solutions for BOLD Farmers

and Ranchers

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BOLD strategies for a BOLD way of life

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What is a BOLD Farmer?

• BOLD stands for Business Owner Life-Stage Design

• BOLD Farmer is a specialized process for only farmers, ranchers and agricultural professionals to:– Review where their current situation– Determine their financial priorities– Outline an Exit/Succession track to exit the

farming operation

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Farmers & RanchersProblem #1 – Financial Concerns

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Farmers & Ranchers Problem #2 – Prioritizing Financial Decisions

• Where do I start? • Do I handle all of these concerns at the same

time?• Do I handle the personal concerns first, then

business concerns?• Is there a roadmap?

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Next, let’s put together a roadmap…

• Stakeholders – Who is coming along?

• Life-Stages– Where you are and where you are going?

• Routes– Personal, business, or both

• Areas– 6 BOLD Priorities

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Stakeholders

• All farmers and ranchers have stakeholders in their business and their personal financial strategies– Farmer and Their Family– Employees– Business

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Life-Stages

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Routes – personal and/or business

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Six BOLD Priorities –What areas are you going to travel through?

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Exit and succession strategies for farmers and ranchers

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Three Questions

1. Who do I want to transition the farm to?– Family member– Third party

2. When do I want to transition out of the farm?– At retirement– At death

3. How do I want to transition the business or farm?– Depends on who and when

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Two Approaches

1. Exit Strategies– Transferring farm to a third party – During lifetime or at death– Strategies need to be income tax efficient

2. Family Succession Strategies– Transferring farm to a family member – During lifetime or at death– Strategies need to be income and estate tax

efficient

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Exit Strategies

• Transferring to an unrelated third party• During Lifetime

– Sell farm at retirement– Retain ownership and rent land and/or farm

• At death– One-way buy-sell

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Sell Farm at Retirement

Transaction Arrange sale to a third party or key employee

Legal transactions or documents Sale, installment note, or contract for deed

Tax ramifications

Income tax ramifications Capital gains on difference between sales price and

basis Ordinary income on any interest charged

Retirement Planning Proceeds of sale used for retirement and remaining proceeds distributed to heirs

Concerns Finding a buyer Getting a fair market price

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Retain Ownership and Rent Land and/or Farm

Transaction

During Lifetime - Arrange rental agreement with a third party or key employee

At Death – Arrange an one-way buy-sellLegal transactions or documents

During Lifetime - Rental agreement (cash or crop lease)

At Death – Buy-Sell agreement with unrelated 3rd party

Tax ramifications

Income tax ramifications Rental Income – Ordinary income Passive activity income?Estate tax ramifications Fair market value of the farm will be included in your

estate at death (value may be determined by the valuation in the buy-sell agreement

Retirement Planning Use rental income for retirement objectives

Concerns Finding a renter Getting a fair market price

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Key strategy – One-way Buy-sell

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What is a One-Way Buy-Sell?

• Farmer and a third party enter into a buy-sell arrangement where the third party will purchase the farming business at the death of the farmer

• Typically funded with a life insurance policy

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One-way Buy-Sell

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One-way Buy-Sell

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Family Succession Strategies

• Transferring to a family member(s)• During Lifetime

– Lifetime gift– Retain ownership and rent land and/or farm

• At Death– Estate Equalization– Family Buy-Sell

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Family Succession Strategies

• Tax issues– Income tax ramifications– Estate tax ramifications– Gift tax ramifications

• Family issues– Treating everyone “equally” or “fairly”

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Key strategy – Estate equalization

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Transfer at Death (Estate Equalization)

• Farmer (and spouse) bequests the farm operation to one child at death of both spouses

• Parents then set up a life insurance arrangement or ILIT for the benefit of the other children– Typically funded with a second-to-die life

insurance policy

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Estate Equalization

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Key strategy – Family Buy-sell

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Family Buy-Sell

• Farmer (and spouse) bequests the farm operation to farming child at death of both spouses

• Parents then set up a life insurance arrangement or ILIT for the benefit of the other children– Typically funded with a second-to-die life

insurance policy– Issue – equality or fairness?

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Family Buy-Sell

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Family Buy-Sell

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Next Steps …

Work with advisors who:

• Have a process that creates a set of solutions specifically for you

• Will treat your land, legacy and heritage with the respect they deserve

Then YOU can rest easier knowing you’ve implemented strategies to provide for yourself

and your loved ones

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Next Steps …

• Please take our BOLD Initial Exit and Succession Questionnaire for Farmers and Ranchers

• Take some time to reflect and answer the questions

• Set up an initial meeting with your advisor(s) to start the process

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Questions?

Guarantees are based on the claims-paying ability of Minnesota Life Insurance Company.

Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods.

Policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit.

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.

Thank you for attending

Securian Financial Group, Inc.www.securian.com400 Robert Street NorthSt. Paul, MN 55101-2098©2013 Securian Financial Group, Inc. All rights reserved.A04669-1213 DOFU 1/2014