Farms and Ranches Archives - Taggart Law, LLC

What’s the Value of Water?

March 3, 2017 by Gregory Leave a Comment

The answer to the question, “what’s the value of water?” is it depends. No surprise there, but to be clear, I’m not talking about the value of the water that runs out of your tap. I speaking of the value of water that is appurtenant to your farm or ranch land. What’s it worth in an of itself?

Well, Deborah Stephenson of DMS Natural Resources LLC, writing at Hall and Hall makes clear that the answer is in no way clear and depends on a number of things, including:

Quantity – The quantity of water that a water right yields.
Marketable Region – The feasible region in which the asset can be transferred to a new user.
Alternative Water Supply Options – Availability of existing water supplies and future water development opportunities within the region.
Water Quality – The quality of a water source can influence the suitability of a water right for a potential new use.
Reliability – The amount of water that is regularly available to the water right holder compared to the claimed or stated volume on the water right. The amount of water available is determined based on a combination of water source yields, hydrological conditions, and the water right’s legal attributes – mainly priority date.
Seasonality – The period during which the water right holder can divert or withdraw water from the source.
Highest and Best Use – The highest value use to which the water right can physically and legally be put to use.

Using those seven criterion, you can arrive at an appraised value of the water in question. But that only gets you so far, Stephenson says. No, you also have to look at water in the operational context, and that assessment is based on three considerations:

Utilizing the water in the current agricultural operation.
Utilizing the water on-site, but changing the use to a non-agricultural purpose.
Decoupling the water and transferring it off the property.

You should be able to readily see that each of those factors will influence the value the water. I’m going to leave it at that. Stephenson covers the topic quite well, so click on the link above and continue–if you’re interested.

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Water and Water Rights

Value Water? Listen to The Water Values Podcast!

February 28, 2017 by Gregory Leave a Comment

In an effort to keep abreast of water, water law, and water rights, I listen regularly to David T. McGimpsey, host of the Water Values Podcast. An attorney with Bigham Greenebaum Doll, David does water law, among other things. In his podcast, he interviews water experts and professionals from all walks of life–engineers, lawyers, hydrologists, water administrators, entrepreneurs, anybody and virtually everybody who does anything with water. I almost always come away from his podcast thinking that was time well spent.

My interest in water law stems from my estate planning and business practice. Water is property and proper estate and business planning ensures that property stays in the right hands over time.

Of course, I’m also interested in water because, as McGimpsey says at the end of every podcast, “Water is our most valuable resource, so please join me by going out into the word and acting like it.” Words to live by.

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Uncategorized, Utah, Water and Water Rights, Wyoming

And You Thought the IRS was out to Get You

February 24, 2017 by Gregory Leave a Comment

Good news from the land of taxes. The IRS audit rate of individuals (.07%) and businesses (.05%) fell to a 10+ year low due to budget cuts. Even high income taxpayers can feel the love:

Audits declined even for the high-income households that have been an enforcement priority for the IRS. In 2016, the agency audited 5.83% of returns with income over $1 million, down from 9.55% in 2015 and marking the lowest audit rate for that income group since 2008.

Filed Under: Family Business, Farms and Ranches, IRS, Taxes

To C or LLC? That’s Today’s Question

February 22, 2017 by Gregory Leave a Comment

I just read an interesting post over at The Startup Law Blog, a post written six years ago. The writer lists “12 Reasons For A Startup Not To Be An LLC.” The key word in that post is “startup,” and key thing to understand is the author’s audience, largely captured in the following paragraph from the post:

For tech or growth companies planning to follow the traditional path of regular and ongoing equity grants to employees, multiple rounds of financing, and reinvestment of as much capital into the business as possible, with the goal of an ultimate sale to a big, maybe public, company in exchange for cash and/or stock, LLCs are typically not the way to go.

If that paragraph describes you, then maybe the C corporation should be the entity of choice for you.

As for the C corp, the author makes another important point. We’ve all heard that one reason–if not the major reason–to avoid the C corp is the possibility of double taxation. Well, maybe:

The bogeyman that you will hear about most frequently is the “double tax” bogeyman. You will be told—don’t form a C Corporation because you will be subject to a double tax.

What is meant by this is that if the C Corporation makes money, it will pay tax on that money. And if it pays dividends to its shareholders, they will pay tax on the dividends. This is true. And so if you anticipate your business being a cash cow, and immediately generating so much money that you will earn more than you can reasonably pay out in salary to the owner executives, then maybe an LLC is a good choice for you. But for most growth businesses, whose goal is to raise capital, reinvest capital, grow fast, grant equity incentives, and ultimately be acquired or go public, a C Corporation is the way to go. For these businesses, the double tax bogeyman rarely appears, and most exits are structured as one layer of tax stock sales. (Emphasis supplied)

In the end, the real lesson, make that two lessons, from the blog post is that one size doesn’t fit all and that there are lots of questions to answer on the road to choosing an entity for your new business venture.

Will you know the answers? Better yet, do you know the questions?

Filed Under: Attorneys, Business Entities, Business Planning, Corporations, Family Business, Farms and Ranches, LLCs

Just Leave It Alone?

February 21, 2017 by Gregory Leave a Comment

As many will recall, then candidate Trump promised to eliminate the estate tax. That was then. This is now–he’s the President. What will he actually do? Will he also eliminate the estate tax’s two siblings: the gift tax and the generation skipping tax? No one knows, though many people care, especially those who preach tax fairness.

Given that married couples currently have to be worth almost $11 million dollars before the estate tax kicks in–it’s more complicated than that, but still–eliminating the estate tax is going to help only the very, very wealthy. And maybe that’s a bad (or a good) thing.

I’m here to argue for the advisor. Estate planning attorneys, life insurance and investment advisors, CPAs and financial planners. I’m betting that each and every one of them agree with the following:

Because the estate tax generates a meager 0.005 percent of annual tax collections, according to I.R.S. figures, it generates far more political debate than federal revenue. And among many tax planners, the calls aren’t so much for reform as for stability, or at least a period of benign neglect.

“Just leave it alone so we can plan,” Mr. Jenney said. “But every administration seems to want to put their own twist on the estate tax.”

Filed Under: Attorneys, Business Planning, Estate Planning, Estate Tax, Family Business, Farms and Ranches, Financial Advisors, Gift Tax, Insurance, Life Insurance, Tax Court, Taxes, Trusts, Wills

Farm and Ranch Transition Conference–University of Wyoming College of Law

February 13, 2017 by Gregory Leave a Comment

The Rural Law Center at the University of Wyoming College of Law is sponsoring the Farm and Ranch Transition Conference on March 3, 2017, a Friday, in Laramie. It’s free. The conference is open to the public. Those interested may attend either in person or via live streaming video. The program sounds interesting.

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Succession Planning

Trustees and Beneficiaries: More Good News than Bad?

May 9, 2016 by Gregory Leave a Comment

I really like the idea behind “The Positive Story Project,” a new monthly column at Wealthmanagement.com. Here’ the first three paragraph from the opening salvo:

My goal in writing this column is to focus thinking within our community of practitioners—important players in the transfer of wealth to younger generations. And, with so much at stake for our clients and their families—a good deal more than preservation of financial assets—let’s make this column a conversation.

Can the widespread dissatisfaction and all the talk of “problem” beneficiaries and “problem” trustees, give way to more creative and productive relationships? I say: “Absolutely.” And, if your intuition is the same as mine, the harder question becomes “how do we get from here to there?”

To begin to find out, my colleague, Kathy Wiseman, and I have been going to the source—beneficiaries, trustees and their advisors—asking them for positive stories about moments in time when their relationships have worked well. I’ll discuss what can be learned from these individuals and their stories in this column each month.

I look forward to more on this subject, both to help me as a practitioner and to inspire my clients and potential clients to use trusts to better carry out their wishes.

Filed Under: Charitable Giving, Estate Planning, Estate Tax, Family Business, Farms and Ranches, Probate, Trusts, Wealth Transfer

(You Gotta) Plan to Be a Rothschild

April 24, 2016 by Gregory Leave a Comment

From Bloomberg:

“For more than a half-century, Mr. Bartley’s Burger Cottage has been a Harvard Square institution. Six days a week, college students line up around the block for creations that include the People’s Republic of Cambridge, a hamburger topped with coleslaw and Russian dressing, and the Chris Christie, which is fortified with marinara sauce and mozzarella. General Manager Bill Bartley was born in 1960, the same year his father, Joe, started the Cambridge, Mass., restaurant. Although all four of his siblings have worked there at some point in their lives, Bill is the only one still there. ‘I was groomed to take over, like a veal calf,’ he jokes. ‘They kept me in that confined area in the kitchen so I didn’t get too big.’

“Mr. Bartley’s is somewhat of a rarity: Only about a third of family-owned businesses survive into the second generation, 12 percent make it into the third, and a mere 3 percent to the fourth, according to the Family Business Institute. ‘Succession planning has become a hot item with every organization we work with,’ says Castle Wealth Advisors’ Gary Pittsford, an Indianapolis-based financial planner. ‘There are more than 27 million closely held businesses, and baby boomers are now in that 65 to 70 age bracket. There’s upwards of 5 million boomer owners trying to figure out what to do.’”

I’ve read similar statistics year in and year out, and yet family business succession planning–including succession on family farms and ranches–remains an issue. I’m guessing those who haven’t done it, but should, have two reasons or excuses: 1. I’m too busy right now, and 2. it costs too much.

In response to the first, I’d remind them, none of us have time; we’re all very busy. And that will never change, so you’re going to have to change your priorities.

In response to the second reason, I’ll repeat what I’ve said before, because it obviously needs saying again: if you think succession planning costs too much, you ought to see what it costs when you don’t do it. Remember this little fact from the quote above:

“Only about a third of family-owned businesses survive into the second generation, 12 percent make it into the third, and a mere 3 percent to the fourth . . .”

I don’t have the facts at hand, but I’ll bet those businesses that make it to the 2nd, 3rd, and 4th generations are successively much better off than the same business in the generation before.

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Wealth Transfer

Quote for the Day

April 23, 2016 by Gregory Leave a Comment

“An often-neglected requirement of federal crop insurance is that the insured producer maintain complete records of crop production, harvesting, disposition, and inputs. Farm clients should be advised that they are to keep records of production and marketing for each crop by insurance unit. These records are an extremely valuable asset to the modern row crop operation, as records of production may be needed to validate farming practices or the production history of an individual farm or farm operation. The failure to provide these records when requested can lead to claim denial or revision of insurance guarantees, impacting the level of protection a policy provides the policyholder.”

Grant Ballard, “Farm Clients & Federally Reinsured Crop Insurance: What Clients Need to Know,” WealthCounsel Quarterly, July 2015

Filed Under: Business Planning, Estate Planning, Farms and Ranches, Quote for the Day

Quote for the (Business) Day

April 14, 2016 by Gregory Leave a Comment

Professor, attorney, and author of Business Planning: Closely Held Enterprises, Dwight Drake has some useful advice for would-be entrepreneurs:

“When the entrepreneurial bug bites a group of charged-up business owners, they usually are focused on making the business succeed, maximizing revenues, and minimizing expenses. They have little interest in discussing potential breakups, the risks of the three big “Ds”— death, disability and divorce — and all the other issues that should be addressed in a well-structured buy-sell agreement. A good advisor will help the owners look at the big picture and consider the entire life cycle of the business.

“Business owners need to prepare early for the day when they will part company for whatever reason. At some point down the road, they are each going to want to or have to cash out their equity interest in the business. Somebody is going to leave the business, die, become disabled, or experience a messy divorce. Plus, the owners should acknowledge the simple reality that no matter how good they feel about one another going into the enterprise, tough business decisions may create friction along the way. Friction often leads to a buyout or, worse yet, a legal blowup.

“Potential separation issues are best addressed in a calm, planning-oriented atmosphere, not at the point of crisis. Preferably, the job should be done at the outset of the business when all parties are making important decisions to devote capital and energy to the business enterprise. Encouraging clients to collectively think about the key issues up front often will bring to the surface diverse expectations that may surprise everyone. It usually helps to have these expectations out in the open before irrevocable commitments are made to the venture. Too often, the parties plunge ahead with little regard for the consequences of their inevitable separation down the road.” (emphasis added)

Consider yourself warned. (It’s not a large leap to apply this advice to estate planning as well.)

Filed Under: Attorneys, Business Planning, Contracts, Estate Planning, Family Business, Farms and Ranches, Quote for the Day, What I've Been Reading Today