Farm Transition & Estate Planning:Helping Ohio Families Face the Future

Chris Bruynis, PhDAssistant Professor & Extension EducatorDavid L. MarrisonAssociate Professor & Extension Educator

CONNECTING THE OHIO STATE UNIVERSITY TO OHIOANS

Problem Statement

• Average Ohio farmer – 57 years old – Majority has not named a farm business

successor– No current farm business transition plan

• Research shows– >1/3 of all family businesses successfully

transition from first generation to second generation

– >1/3 of those eventually transition to the third generation

Teaching Objectives

• Increasing knowledge– Current planning tools – Current tax laws

• Encourage family communication• Encourage starting and completing

many pieces of their transition plan

Multiple Styles & Models

• Presentation format varies from– Lecture with suggested readings– Activity based format with case studies and

suggested document organization

• Delivery ranges from– Multiple day workshops– Full day workshops– Presentations within a larger workshop– Evening programs (2-3 hrs)

Teaching Approach

• No one correct plan • Multiple tools available – Each has its own pros and cons

• Personal planning objectives will determine which tools

• Communication is critical to success• Don’t forget the untitled assets and

goodwill agreements

Whole Farm Planning Model

Answer this Question

Do I want to pass my family business on to my heirs as an ongoing business or do I want to pass it on as a group of assets?

Transition Planning

• Assumes a next generation• Involves– Growing the business to accommodate

more families– Selecting and training a successor– Gradually turning over control of the

business– Creating an estate plan that protects the

on-farm heir(s)

Estate Planning

• The transfer of assets (the estate) from one generation to the next– Ownership of assets (sole proprietor verses

limited liability company or s-corporation)– Treatment of heirs– Step-up in basis issues with different plans– Probate concerns– Trusts, TOD’s, Power of Attorney, Wills, etc

Retirement Planning

• Planning cash flow needs in retirement– Identifying the retirement dream (and how

much it might cost!)– Estimating future cost of living • Rule of 72 & rule of 115

– Potential cash income from owned assets• Both on farm and off farm holdings

– Long term care planning and cash needs

Importance of Planning

• Business Entity Documents are the glue that keeps a business plan together– Partnership agreements– Corporation bylaws– LLC operating agreements

• These documents control – Who are the owners– Ownership percentages– Management authority– Transfer restrictions– Dissolution terms

Meeting Evaluations

• Evaluation data showed – Increased knowledge on estate tax laws– Improved communication and expectations

between generation– Sense of urgency to start working on a

transition plan to reduce risk exposure– Sought out professionals to help create the

transition/estate plan.

Transferring Your Farm Business to the Next Generation Bulletin

• OSU Extension Bulletin 862 available at – http://estore.osu-extension.org

• 89 page bulletin helps families plan for he future of their business by examining the following questions: – 1) Do I want to pass my farm operation to my heirs as an

ongoing business or do I want to pass it on as a group of assets?

– 2) How can you tell if the business is profitable enough to provide for the next generation?

– 3) Are there enough income and assets to provide for the older generation’s wants and needs?

– 4) How can you help the two generations get along? – 5)What should you transfer and in what order? – 6) How can you avoid paying too much income, gift and estate

taxes?

Transition Planning Factsheets

• Available athttp://ohioline.osu.edu/bst-fact/index.html– A Comparison of Business Entities Available to Ohio Farmers– Conducting a SWOT Analysis of Your Agricultural Business– Conducting Successful Family Business Transition Meetings– Develop a Useful Mission Statement for Your Agricultural Business– Developing Goals for the Agricultural Business– Developing the Next Generation of Managers– Planning for the Successful Transition of Your Agricultural Business– Starting, Organizing, and Managing an LLC for a Farm Business– Tax Characteristics of Business Entities Available to Ohio Farmers– Using Liability Limiting Entities to Manage Liability Exposure for

Ohio Farms– Is a Prenuptial Agreement Right for Your Farm Business?– Whole Farm Planning Model

Basic Estate Planning Factsheets

• Available at http://ohioline.osu.edu/ep-fact/– Introduction to Estate Planning– Costs Involved in Transferring Property– Tax Basis if Property Is Transferred– Why Have a Will?– Letter of Instruction– Life Insurance– Trusts– Giving– Sale of Residence– The Nursing Home Dilemma– Medicare and Medigap– Miscellaneous Issues

For More Information

Chris Bruynis, PhDAssistant Professor & Extension EducatorOSU Extension, Ross County, Ohio Valley EERAbruynis.1@osu.edu740-702-3200

or

David MarrisonAssociate Professor & Extension EducatorOSU Extension, Ashtabula County, Western Reserve EERAmarrison.2@osu.edu 440-576-9008