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Estate Planning for the Modern Farming Family

October 28, 2014 By Cooper Leave a Comment

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By: Senior Attorney Dan Vu

White barn with Ohio logoI have always found that farming families are more aware of the importance of proper estate planning than the general population. This is perhaps, because most farmers have a story or two of an estate plan that went terribly wrong. I am never surprised, because there are plenty of ways for an estate plan to fail, especially for farmers.

For farmers, the stakes are high and the goals are even higher. For example, most want the farm to stay in the family for their children who want to continue the farming tradition. The difficulty is somehow also providing for the children who don’t want to farm while burdening all of their children with as little tax and debt as possible. These are long-standing problems for farmers, and I am certain that the fairly recent boom in farmland prices have only exacerbated the problems.

With these issues looming, most farmers attempt to resolve them earlier than most other families. I confirmed this when I was recently working in our booth at the Farm Science Review in London, Ohio. Many farmers I met already had a revocable living trust in place. This was good news since I believe that a revocable living trust is a necessity for a farming family. If properly created and utilized, it can resolve many of the farmer’s concerns. However, I was also glad to be there to explain how a typical revocable living trust cannot, on its own, solve all of the problems that face a modern farming family.

The most often overlooked but most costly modern problem is the devastating expense of long term care. Today an extended stay in a nursing home could literally cost the farmer his or her farm because, unfortunately, a revocable living trust cannot protect the farm against these long term care costs. In fact, the State routinely requires farms to be sold to pay for the cost of long term care… and … the State will place a lien on farms that can’t be sold.

Also often overlooked is the problem of the capital gains tax. This is not a new problem but with elimination of the Ohio Estate Tax and the increase in the Federal Estate Tax exemption, the modern farming family has a new opportunity to take advantage of the “step-up in basis” rules. A “step-up in basis” occurs at a farmer’s death and it allows the family to re-depreciate assets or sell them with little to no capital gains tax. Before the changes in the estate tax, the farming family would have to choose between paying the estate tax or receiving a favorable capital gains tax treatment. With these recent estate tax law changes, many farming families can now receive favorable capital gains tax treatment without a large estate tax.

It’s not often that the government lets you have your cake and eat it too. But you do not get the full use of the “step-up” rules with a typical revocable living trust. In fact, many of these older trusts were created before the estate tax law changes and most put the farming family in a worse tax position than they would have been with no trust at all.

So if you are a farmer, it is important that you take another look at your revocable living trust and your existing estate plan as a whole. Make sure it is built to face the modern problems of today’s farming families. I know you are thinking that you already took the time to do so years ago with some attorney who you can barely recall. But unfortunately things change, so make sure your plan changes with it. Swing by our booth at next year’s Farm Science Review or better yet, call us after this year’s harvest for a complimentary appointment with one of our knowledgeable attorneys.

Filed Under: Blog, Estate Planning

How Can You Reduce or Avoid High Trust Taxes?

October 21, 2014 By Cooper Leave a Comment

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By Sandra K. Dennison, CPA

A recent article in the Wall Street Journal describes a strategy to avoid taxes when you put money into a trust and when you take it out. Here’s a summary of how it works:

Distributes net income to lower tax bracket beneficiary

In cases where Mom & Dad’s trust has a higher tax bracket than their beneficiary’s, there is an opportunity to save tax dollars. Trusts have fewer tax brackets and higher tax rates than individuals who have more tax brackets and lower tax rates. Consider that a trust with as little as $12,150 in assets pays the maximum tax rate – 43.4% while individuals can earn over $400,000 before they pay 43.4%. It seems clear that paying at the individual tax rate is better than paying the trust rate, in most cases.

You also have the option to look at which tax strategy (trust or individual) makes the most sense – if you get it done in the first 65 days of the year. This extended “decision time” is only available to trusts and beneficiaries.

Although appealing, distributions should not be made just for the sake of tax saving and certainly not without expert counsel. Distributing funds from a trust could produce negative consequences that far outweigh the tax savings. Respect for the purpose of the trust is more important.

Read more at: “How a Trust Can Cut Taxes” written by Arden Dale for the Wall Street Journal.

Filed Under: Blog, Taxes, Trust

How a Trust Affects Your Ohio Homestead Exemption

August 12, 2014 By Cooper

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By Tricia Applegate

Do I still qualify for the Homestead Exemption if my home is in a Trust? The short answer is yes, with a few provisions. The State of Ohio states:
You are eligible for the homestead exemption if all of the following are true:

  • You created the trust to be effective during your lifetime (an inter vivos trust)
  • You provided the assets for the trust (you are the settlor).
  • The trust agreement contains a provision that says you have complete possession of the property.

Revocable and irrevocable trusts may qualify. Most of the other common forms of property ownership (such as survivorship deeds) also qualify for the exemption. Properties owned by corporations, partnerships, limited liability companies and trusts, other than the trust described above, are not eligible for the homestead exemption because such properties are not owned by an individual.

If you have questions regarding your trust and the homestead exemption, please contact your estate or elder law attorney.

 

Filed Under: Trust

What is HIPAA?

August 11, 2014 By Cooper

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By: JM Megail Gaumer

HIPAA stands for “Health Insurance Portability & Accountability Act”. The law was adopted in 1996 to, among many other complicated provisions, protect patients’ personal information (a.k.a. protected health information).

So what is considered “protected health information”? The Privacy Rule protects all “individually identifiable health information“ held or transmitted by a covered entity or its business associates, in any form or media, whether electronic, paper, or oral. The Privacy Rule calls this information protected health information (PHI).

“Individually identifiable health information” is information, including demographic data, that relates to:


  • The individual’s past, present or future physical or mental health or condition.

  • The provision of healthcare to the individual, or

  • The past, present, or future payment for the provision of health care to the individual.

So what does it mean to you? If you are injured and cannot speak for yourself, your family may not be able to obtain information about your condition.

What can you do? It is imperative that you have healthcare directives (a Health Care Power of Attorney or Living Will) that include language specifically permitting your loved ones to require that the hospital release your protected health information to them. This will allow individuals you name to obtain information regarding your care and condition.

 

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Filed Under: Important Documents

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