Question on your farm LLC, inc or trust

How did you guys do your farm and holdings and at what point did you do one of the above? How did you set it up with your antique tractor collection, your laundry mat in town. What were the pro's and cons?

A good question. For me it involves mineral rights that need to be held for future development And on topic for holding old tractor collections as they get more valuable.

I don't have a laundry mat but I have a parts business in town and also do custom farming on the side. I just throw all the money in a pile and write checks. There is never enough.

All of my folks estate is in the trust even the checking accounts. Any specific tractor he wanted me to have he "sold" to me for $1 with a bill of sale. Just got power of atty because of their dteriorating health and lawyer used a "pour over" bill of sale to make sure all the piddly stuff ie the car the lawn mower etc was also in the trust.

Hey,I do it that way,too.Same thing for me,never enough.

Laundromat should be a seperate entity.Farm could also be a LLC.Personal stuff, house,tractors etc, in a living trust. I would seek the advice of a estate planner.

Vito

Some of the big local farmers are incorporated; most of the rest of the 'family' size operations are just run as a simple business. Some of the best money a farmer can spend is to hire an accountant who's well-versed in his particular type of operation.

Everything was put into a revocable trust this year. I set up the antiques that a certified appraiser sets value on each, total is divided by six (six kids), then each kid gets that much in "script" and can "buy" which ones they want. If two want the same one..draw lots for that one. Script can be traded between kids. Dozer,scraper, backhoe were left to all as community property. Anything sold gets split six ways.

A trust doesn't do anything for federal taxes,just bypasses probate.If an estate is un der 2 million is exempt anyhow.There might be raising it to 5 million.A lot of people with trust don't need them,it's a way for lawyers to make money.An LLC is about the same way.It doesn't protect you much,it's just another hurdle a lawer has to go through to sue you.

Sole proprietership. There are lots of advantages to some type of corporation regarding wages and benefits but there is more hassels with record keeping. Some civil suit protection as well. At some point I may go that route for the tax treatment for rent and capital gains vs earned income for self employment taxes.

Right now its 2 checking accounts, 2 credit cards. One for me one for farm. Accountant sorts it once a year at tax time.

Gotta agree with Ray, that trusts are generally just a device for lawyers to get their hands in your pocket. I have never written a revocable trust for anyone, and never will. I do write a lot of deeds to get folks out of them. Most of the time, their only purpose (avoiding probate) is thwarted because folks don't put everything into them, so have to do a probate anyhow. The trust hawker is happy to write it up, then just tells you to put everything in it as he hustles you out the door- people don't realize there is more to be done, and don't have the slightest idea of what to do, so it lies ignored until they die.

Around here, trusts tend to cost about $3,500, and most of my probates run around 2 grand. If you want to spend 3500 to save 2000, I might have some swamp land you would be interested in.

As far as LLC vs. corporation, usually an LLC is fine if its a business entity like a family farm, that doesn't anticipate strangers or investors buying into it. LLC has the same legal effect, but lacks all the silly things in a corp that make you say "Why do we have to do that?"- like issuing shares, annual meetings, board meetings, etc. The only real legal advantage of either is avoiding liability, and I recommend you insure for that rather than trusting the business entity.

There can be some advantage as far as paying into social security is concerned, in certain circumstances. "Ask your tax professional".

Hi Mike---you wrote:

"Around here, trusts tend to cost about $3,500, and most of my probates run around 2 grand."

I am not an attorney, but understand there is no "set" fee for probate....I am curious. Can you tell me what value on average an estate would have to be for the probate fee to be around $2000 in your practice.

Thank, Tim

Mike, I had some clients walk in a few weeks back whose father died and they thought it was gonna be easy for me to help them BUT JUST AS I WARNED THEM A BIG PART OF HIS ASSETTS WERE NEVER PLACED INTO THE TRUST and its costing them more because I have to deal BOTH with probate and trust issues. To make it worse, his pour over will placed some in trust other to his kids???

Around here they get like $3,500 for a trust buttttttttttt you get that nice pretty leather cover wooooooo hoooooooooooo. I practice more in "poor mans wills" like joint ownership and other such simpler cheaper means to avoid probate without having to go down the trust road.

About the same as you, unless its within a small estate affidavit range (under 50K) $2,000 is about the minimum as it still takes a ton of time and paperwork and pleadings on my part to probate an estate. I think the big shots in town work in the 4% to 7% range but Im not sure.

John T Just a semi retired "Country lawyer"

John T----I always appreciate both yours and Mikes comments on these issues.

Some of the hot shots charge that 7% in my area as well....on a $1 mil estate that fee is pretty costly compared to the cost of a trust..even at 2%...

There are a lot of "small" farmers with 1/2 sections of land that are worth $3000/acre that may be better off paying the $3500 vs. the 2-7% "fee". Most of the operating farms are larger.

But...like both you and Mike said, most people walk out of the attorney office with that nice leather folder and then never follow thru with the written recommendation to title assets into the trust.....

WI affidavit range is 50K as well. Most "poor" folks can do just fine with jointly held assets, and P.O.D. and T.O.D."s.

My Nonlegal Opinion..

Tim

Yes, you have to have a few records and an annual meeting and keep separate books with a corp. Do you have grain or livestock on the farm? Then the corp can give you--the employee- all food, shelter, utilities and home repairs as your job "makes" you live there to watch the grain/livestock. That is a HUGE benefit. Easily worth $30,000 a year--that will make a pretty good farm payment.

Some would have the business in town be an LLC owned by you personally. Assuming the farm is a large entity. I'd have it own the LLC in town, then if the farm has a bad year the LLC's profits can offset the farm's lower income for an overall reduction in taxes. That can't be done if you own the LLC personally.

All of this assumes the farm and business in town are generally profitable--deductions don't matter if you aren't making good money. I would guess the consulting and tax work on a farm corp, LLC, and personal, to run $3,000-5000 a year--once again, not a problem if the farm is large and profitable and $30,000 worth of living expenses can be written off.

Keep real estate holdings personal, and have the corp rent it from you. Much easier to sell if not corp owned, and much easier to end corp for whatever reason if RE not in it.

Have the corp have a different fiscal year than the personal--allows for year-end juggling which can also reduce taxes.

Vehicles need to be properly titled and used almost exclusively by the entity that owns them--the liability firewall has to be solid or you will lose in a lawsuit.

Employees can work for all entities, but must track their time separately and be paid from the proper account--once again, the liability firewall has to be maintained.

I guess I wouldn't know about where to own some old tractors, but I doubt they'd be a reason to do any of this.

I guess I'm hopelessly out of touch with modern billing practices, but my fees have nothing to do with the size of the estate. I charge by the hour, and at least in Washington with an uncontested estate, there's just not that much to it. Of the 2 grand, only about $1,200 is legal fees, rest is costs of filing, publishing notice to creditors, etc. My secretary does most of the work, and frankly, I'd feel guilty charging any more than that.