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Preserving and Protecting Your Family Farm or Ranch NAME OF PRESENTER Financial Representative, Princor Registered Representative and Financial Advisor.

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Presentation on theme: "Preserving and Protecting Your Family Farm or Ranch NAME OF PRESENTER Financial Representative, Princor Registered Representative and Financial Advisor."— Presentation transcript:

1 Preserving and Protecting Your Family Farm or Ranch NAME OF PRESENTER Financial Representative, Princor Registered Representative and Financial Advisor

2 While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance issued by Principal National Life Insurance Co. (except in NY), Principal Life Insurance Co. and the companies available through the Preferred Product Network, Inc. Securities offered through Principal Securities, Inc., 800/247-1737, Member SIPC. Principal National, Principal Life, the Preferred Product Network, and Principal Securities are members of the Principal Financial Group ®, Des Moines, IA 50392. No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Copyright ©2015 Principal Financial Services, Inc. BB10368-02 | 03/2015 | t15020403yr

3 What if you were to become ill? What if you were to pass away tomorrow? Who would run your farm or ranch? A hard question: Are you prepared for the next phase of your life?

4 Why start now? Your family’s legacy is too valuable to be left to chance. You’ve worked hard all your life. Your plans deserve to be honored. You don’t want to burden your family. The time to act is now.

5 The Principal Financial Group ® can help We understand. No two farms or ranches are alike. No solution is right for everyone. We customize to meet your needs.

6 Our areas of expertise: –Estate equalization strategies –Succession planning/wealth transfer –Asset identification and distribution How we can help you

7 How do you plan to preserve what worked so hard to build? –Who should inherit your assets? –Which assets should they inherit? –How should they inherit them? –When should they inherit? Our No. 1 question for you

8 We’ll help you find the answers Things to consider: Should your children share equally? What about grandchildren? What about donating to a charity?

9 Can you leave it to a family member? Is that person committed? If you can’t leave it to family: –Will you designate someone else? –Will you sell to a stranger? What about your farm or ranch itself?

10 This is a lot to think about… …but you don’t have to find the answers alone. We understand you’re busy, so we’ll walk you through a process that won’t take too much of your valuable time.

11 Scenario 1 Consider this common scenario: Dad, mom and son are farming. Sister, not farming, lives out of state. Dad and mom are looking forward to retirement and want to pass ownership of the farm to their children. Parents want to be fair to both children even though one has no interest in farming.

12 A possible solution: Estate equalization for family farm Gifting strategy –Gift farm – either in a lump sum or over time depending on value $5,340,000 lifetime exemption or $14,000 (indexed for inflation) annual gift –Equalize inheritance with life insurance –If parents need retirement income, hire them!

13 An alternate solution: Buy-out strategy for family farm If parents want to gift equal shares of the farm to each child:  Suggest the farming child buy life insurance on the dad so he’s in a position to buy the sister out of her shares upon dad’s death.  Dad may want to help the farming child pay the premiums on the policy by bonusing him the money to help with the life insurance premium.

14 Scenario 2 Non family-owned farm: Select buy-out strategy In a corporate farming situation, family members often are not available to succeed the farmer or rancher who is ready to transition.

15 A possible solution Selling to a current farmhand or other employee. The farmer can help facilitate the buyout by: –Exercising a select buy-out strategy by bonusing the employee a certain amount annually or in a lump sum, providing the employee with a down payment. –Then an installment sale can ensue, creating retirement income for the exiting farmer.

16 Scenario 3 Two brothers own a farm jointly. One has a wife. The other has a wife and son. The farm is not incorporated. Together, each brother owns: Acreages (interconnected) Equipment (each doesn’t have his own) Buildings, tools, grain, etc.

17 Worst-case scenario One brother dies. His spouse/family – and the surviving brother and his family – would face innumerable challenges because of shared ownership.

18 A potential solution Create an entity [a corporation, S corp., Limited Liability Corporation (LLC) or a Family Limited Partnership (FLP)], and put a buy-sell agreement in place. Allows widow/family of the deceased brother to sell shares of stock/ownership back to the surviving farmer.

19 Excerpts from directive letter from a farmer to his wife Elizabeth, should I precede you in death, you will have a colossal mess to deal with. I would suggest proceeding as follows. Complete the current year of farming. At the end of the current crop year, rent the land to Bill. The bank can guide you as to what is fair. Buildings and bins are located at Mom’s farm and Bill’s. It’s hard to sort out what is ours, Bill’s and Joe’s. Joe doesn’t have anything now but will at Mom’s death. This will be difficult to settle. Hypothetical example for illustrative purposes only. Any similarity to any actual circumstances is purely coincidental. “ ”

20 Excerpts from directive letter from a farmer to his wife Seek help in liquidating the grain and machinery. If sold in one year, you will have an unbelievable tax bill. Spread it out over multiple years by selling on contract to Bill. This process will take a long time – probably two to three years. However, the headache will be worth it as you will have some equity and assets when the dust settles. It’s better than nothing! I would definitely enlist the help of a financial professional, CPA or attorney. Hypothetical example for illustrative purposes only. Any similarity to any actual circumstances is purely coincidental. “ ”

21 THE BOTTOM LINE: Create an estate plan, or keep your current estate plan updated!

22 GOOD Skyrocketing land values Elevation in crop prices Increase in new technology BAD Potential increase in income taxes Rise in estate taxes Economic changes

23 Diversification “Don’t keep all your eggs in one basket.” For illustrative purposes only and should not be used as a recommendation to buy, hold, or sell any security product. Diversification does not guarantee a profit or protect against loss.

24 Something to think about Because federal estate tax rates can be as high as 35 percent, if you don’t plan adequately to transition your operation, your family could lose more than one third of the wealth you’ve built. Don’t let your family bear that burden.

25 Our promise to you We’ll treat your land and legacy with the respect they deserve. We’ll help find a solution that’s right for your personal situation – not your brother’s, not your neighbor’s. You can rest easier knowing you’ve put strategies in place to provide for yourself and your loved ones. Let’s get started.

26 Simple planning steps 1. Review the net worth of the farm or ranch. 2.Review wills, beneficiary designations and other miscellaneous documents. 3.Review your estate plan with a financial professional, attorney and CPA or banker. 4.Implement estate tax saving strategies.

27 Questions and answers [Presenter Name] [Contact Information]


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