Wills & Trusts

The foundation of your rock-solid estate plan.

For so many of us, family is paramount. You probably expect to use your wealth to take care of your family in the here and now—health care, travel, college tuition and the like. But chances are you haven’t thought nearly as much about positioning your assets so they’re ready and able to help the people you love after you’re gone. Even if you have made some headway in this area, your plan for your estate is probably a little—and maybe a lot—out of date.

If that describes your situation, don’t fret. Even if you have many moving parts to your finances, you can get on track by focusing on two main areas of estate planning: wills and trusts. Here’s how to do it.

Where there’s a will, there’s a way

Read this next sentence three times in a row: Everyone should have a will.

Got it? A will should be the basic foundation of every estate plan—the starting point for a well-conceived strategy to transfer assets at death.

A will identifies precisely what you want to have happen to your assets and estate. Dying without a will means you have decided that the state knows what’s best for you and your family. In addition, dying without a will means you want to make the settling of your estate as difficult, as costly and as public as possible.

As with any decision, there are both positives and negatives to a will. That said, we strongly believe the benefits of writing a will far outweigh the drawbacks.

Is a trust for you?

  1. Are your beneficiaries unwilling or unable to handle the responsibilities of an outright gift (investing the assets, spending the gift wisely, etc.)?
  2. Do you want to keep the amount and the ways your assets are distributed to heirs a secret?
  3. Do you want to delay or restrict the ownership of the assets by the beneficiary?
  4. Do you need to provide protection from your and/or your beneficiary’s creditors and plaintiffs?
  5. Do you want to lower your estate taxes?

 If you answered “yes” to any of the five questions, you may find it beneficial to set up a trust.

Advantages:

  • You decide on the disposition of your hard-earned wealth.
  • Estate taxes are mitigated—especially when the will is part of a broader estate plan.
  • You specify who the fiduciaries will be.

Disadvantages:

  • You have to accept that one day—far in the future—you just might die.
  • There is a legal cost associated with writing up a will and with estate planning.

Trust in trusts

The second component of a smart estate plan is often a trust. A trust is nothing more than a means of transferring property to a third party—the trust. Specifically, a trust lets you transfer title of your assets to trustees for the benefit of the people you want to take care of—aka your selected beneficiaries. The trustee will carry out your wishes on behalf of your beneficiaries.

WILLS AND TRUSTS COMPARED 

Broadly speaking, there are two types of trusts: living (established while you are alive) and testamentary (created by your will after you’ve passed). Living trusts are becoming more and more popular to avoid the cost of probate. In the probate process, your representatives “prove” the validity of your will. The probate process also gives any creditors the opportunity to collect their due before your estate is passed to your heirs. There may be a long delay in settling your estate as it goes through probate. To add salt to the wound, probate can be costly. 

A living trust can avoid or mitigate the effects of probate. It is a revocable trust that you establish and of which you are also typically the sole trustee. The assets in your living trust avoid probate at death, and are instead distributed to your heirs according to your wishes.

Living trusts are sometimes said to be superior to a will, but that is certainly not the case for everyone. It’s important that you understand how they compare.

Comparing Wills and Living Trusts

Wills Living Trusts
Are viable only at death. Can have uses while you’re alive.
Are public. Are private.
Are not very good when you’re dealing with more than one state. Are good in every state and not encumbered by states.
Must go through probate. Can generally avoid probate.
Are less expensive to put in place. Are more expensive to put in place and administer.

Is a living trust for you? It depends on your particular situation. Nevertheless, you should certainly consider it in consultation with your legal advisor or wealth manager.

Your next move

We recommend that your estate plan be reviewed every year or two. The review should be conducted by a high-caliber wealth manager or tax professional—one who takes the time to learn what’s changed since you put your solutions in place, assess how those changes might impact your strategy, and make recommendations for getting your solutions current and in accordance with your wishes.

ACKNOWLEDGMENT: This article was published by the BSW Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2017 by AES Nation, LLC.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This article is for general information only and is not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.

 

 

Increasing Farm Efficiency During Challenging Times

It’s no secret that for many producers the past few years have been challenging. The days of $7 corn and $15 beans are more than five years in the rearview mirror and it takes a sharper pencil these days to be profitable and maintain a viable farming operation.

Farm efficiency can be obtained in many different ways. A good farm tax expert can be extremely valuable.  Some farmers focus on being better marketers.  Others key in on reducing costs of inputs and understanding government programs. Using new technologies can help an operator better understand how resources are being used.  Working with a banker to effectively manage capital is very important to other operators.

Few farmers, however, have the time or resources necessary to study all of the areas where efficiencies can be gained. But in these times of lower margins, it’s worth taking a look at areas you might have ignored over the past few years or strategies that you may need to take a second look at.

Technology

Ag technology has come a long way in the past five years, and in general is now more affordable to more producers. Seth Robinson of AgriVision Equipment Group (John Deere) in Winterset, Iowa, says their 3i service often more than pays for the cost of the program for many farmers.

“The 3i program divides your land into three zones from high producing to low producing land and we’ve seen situations where we can raise production in all zones because the data the system collects can allow decisions like planting rates and fertilizing rates to be made on a micro basis. We price 3i on a per bushel basis according to the number of services the farmer wants help with, so we are tied to the growing season and varying conditions, just like the grower.”

Granular is another digital ag solution that consists of products that help farms track their inputs, outputs, crop planning, financial forecasts, and workflow. Their Farm Management Software (FMS) helps farmers understand profitability by field by organizing the numerous data points on the farm.

Dakota Hoben, Customer Success Manager with Granular says, “We typically find farms that are 2,000 acres and above really value the product. But we can work with farms anywhere from 1,000 – 50,000 acres.”

The software is priced on a per acre basis for about $3 and includes software, customer success manager, and support.

In today’s world, time is money – especially during planting and harvest seasons. Applications using smartphones can reduce much of the time it takes to resolve issues. Apps like AgriSync allow farmers to connect with their local, trusted agribusiness consultants for help adopting and implementing new technologies.

Broad based technology has also entered the world of ag finance. Steven Johnson, Iowa State University Extension Farm Management Specialist, said in a recent farmer meeting to Farm Credit Services members in Red Oak, Iowa, that producers who are customers of Farm Credit Services should consider using their AgriPoint technology to move money between accounts, pay bills, wire money and make payments. AgriPoint also offers tools to create balance sheets, cash flows, what-if scenarios, and the ability to apply checks as payments on your desktop or mobile device.

Marketing

Although no one has a crystal ball when it comes to selling commodities, there are ways to certainly put the odds in your favor. Johnson of Iowa State University said understanding your localized historical basis information can add many cents per bushel to the average selling price of corn and beans when part of an overall marketing strategy.  He believes better days are ahead, demand for animal protein will increase demand for grain and current conditions could represent a trough of the 5-7 year cycle.

Tax Strategies

In 1935, United States Court of Appeals for the Second Circuit Judge Learned Hand said, “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” The U.S. tax code offers numerous opportunities for those in agriculture to use legal means to reduce their taxes. Karen Havens, a CPA in Greenfield, Iowa, who caters to farm clients, believes you can be creative while being ethical and legal.

“Farming has progressed to where business knowledge is essential, from choosing the right business structure to accurate records, tax planning, asset acquisition, cash flows and dealing with lenders. Farmers need to be aware of various tax strategies available to choose strategies that might benefit his particular circumstances, such as retirement funding, employees with employee health benefits, the Domestic Production Deduction, estate or succession planning, as well as other ideas.   Finding knowledgeable professionals to help navigate the maze of options is critical.”

Other strategies that can serve double-duty as both cost-reducers and tax-savers for specific situations include establishing your own captive insurance companies for property casualty coverage, creating conservation easements through land trusts to potentially generate both income tax credits and deductions, and for farmers close to retirement starting cash balance plans to create deductions, postpone taxes and fund retirement. These strategies are not new and not exclusive to agriculture but will most likely grow in popularity as some farmers get closer to retirement and the average farm operation continues to grow.

Government Programs

The United States Department of Agriculture (USDA), through its Farm Service Agency (FSA) division, offers many programs designed to aid farmers in becoming more efficient and potentially improve profitability. Producers are typically fairly well versed on the more popular FSA programs such as the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs that were authorized by the 2014 Farm Bill. Agriculture Loss Coverage-County (ARC-CO) provides revenue loss coverage at the county level. ARC-CO payments are issued when the actual county crop revenue of a covered commodity is less than the ARC-CO guarantee for the covered commodity.  Price Loss Coverage (PLC) program payments are issued when the effective price of a covered commodity is less than the respective reference price for that commodity. The effective price equals the higher of the market year average price (MYA) or the national average loan rate for the covered commodity.

Another popular FSA program is the Conservation Reserve Program (CRP). CRP is a land conservation program administered by FSA.  In exchange for a yearly rental payment, farmers enrolled in the program agree to remove environmentally sensitive land from agricultural production and plant species that will improve environmental health and quality.

Beyond that, there are other programs available that are less well known, such as Noninsured Crop Disaster Assistance Program (NAP), which provides financial assistance to producers of noninsurable crops when low yields, loss of inventory, or prevented planting occur due to natural disasters.

In addition, FSA has many different types of farms loans, such as Guaranteed Farm Loan Programs that help family farmers and ranchers obtain loans from USDA-approved commercial lenders at reasonable terms to buy farmland or finance agricultural production. There are beginning farmer loan programs, minority and women farmer loan programs and emergency farm loans.

Insurance

No one relishes the idea of purchasing insurance, yet there have never been more assets at risk in farming than there is today. Finding effective insurance strategies is a must, and finding efficient ways of paying for insurance is also critical.

“To be the most efficient with their coverage farmers really need to sit down with their agent on an annual basis and review coverage limits,” said Jamie Travis of Hometown Insurance in Creston, Iowa. “I advise my farmers to take risk where they can afford to and save premium.  Many times farmers do not have adequate coverage for their liability exposure.  Umbrellas are relatively inexpensive and they provide coverage in areas where farmers cannot afford to take risk.  If someone is injured or killed as a result of a farmer’s negligence, their responsibility to the injured party could be significantly more than their liability limit.  Adequate umbrella coverage can avoid being forced to sell assets in order to indemnify an injured party.”

In summary

According to futurist Jim Carroll (www.jimcarroll.com) estimates are that the world population will increase nearly 50 percent to almost 9 billion by 2050.  As a result, he predicts a great future for agriculture. To meet the demand, he predicts everyone in agriculture will need to be more efficient.  Producers will have to continue to focus on smarter, better, more efficient strategies in order to stay competitive and thrive.  To do that, they’ll need to seek out professionals in many disciplines to keep them up to date on trends and strategies that can help them stay efficient, improve their profitability and achieve their long-term goals.

Mike Moffitt is a Chartered Financial Consultant and founder of Cornerstone Financial Group with offices in West Des Moines, Iowa, and Creston, Iowa. Using his strategic partner network of professionals in accounting, legal and other key disciplines, he works closely with farmers and ag business owners on strategies that seek to help them grow their business and/or prepare for retirement. He can be reached at 641-782-5577.  Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through Advantage Investment Management, a registered investment advisor.  Cornerstone Financial Group and Advantage Investment Management are separate entities from LPL Financial.  Other companies and their services mentioned in this article are not affiliated with LPL Financial and Cornerstone Financial Group.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.  There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.