OSU Extension offers Estate Planning Assistance

A common miss conception is that only those with lots of money should have an estate plan. Yes, farmers who would like a son or daughter to be able to continue farming the farm do need to do estate planning. Yes, those with assets over a million dollars need an estate plan.

However, it is also important for the less wealthy to understand how they title their car, life insurance, retirement plan, bank accounts, etc., as such is also part of their estate plan. Those less wealthy also would like for the sentimental items to be passed onto those heirs who most value them.

So that the common and elderly person can understand the basic concepts of estate planning, a series of fact sheets called “Basic Estate Planning Fact Sheet Series” has been developed. The fact sheet series is written for the common person in an easy to understand manner and is in large print. Questions are provided at the end of each fact sheets along with answers.

The authors of this fact sheet series are me (Jim Skeeles) and Russell Cunningham, an attorney in the Columbus vicinity certified by the Ohio State Bar Association in Estate Planning Trust and Probate Law. We the authors hope people will settle down in an easy chair, take one fact sheet at a time, read it, fill out the response sheet (with your spouse if married), then compare it with our answers at the end of the fact sheet. Our contact information is on each fact sheet in case people have questions, concerns, or differ with the answers provided.

This fact sheet series is intended to introduce people to basic concepts needed to develop an estate plan. Therefore, these fact sheets are in no way, shape, or form intended to replace legal counsel. In fact, it is our hope that after reading the fact sheets people will have a better understanding of what they want in an estate plan and as a result visit their attorney to initiate the plan.

The fact sheets are intended to help people understand the concepts needed to arrange for the well-being of loved ones and self while living and after death. For many, especially for those less wealthy, personal relationships are more important than financial considerations. In fact, for many of us, more money doesnt increase happiness. The same may be true of your heirs. Therefore, the emphasis of the fact sheets is not only financial matters but also personal considerations. A successful estate plan not only provides for retirement while passing the largest possible estate to loved ones, but also does this in a way that the people are friends through the process and after the estate is settled.

There are twelve different fact sheets that cover the following topics: 1) Introduction, including objectives such as treating children equally or equitably, continuing a viable business, liquidity needed, preserving equity and investment or using up assets during retirement, 2) Costs Involved in Transferring Estate, 3) Tax Basis for Transferred Property,  4) Wills, 5) Letter of Instruction, 6) Life Insurance,  7) Trusts, 8) Giving, 9) Sale of Residence, 10) Nursing Home Dilemma, 11) Medicare and Medigap, 12) Generation-Skipping Trusts, Limited Liability Companies, Conservation/Agricultural Easements.

The fact sheets can be downloaded for free from the OSU Extension web site, ohioline.osu.edu by clicking on the fact shee link on the left side of the page, then on the “Basic Estate Planning Series” link, the 11th link from the top. The direct link to the fact sheets is: http://ohioline.osu.edu/ep-fact/index.html

Another excellent workbook to help with the allocation of sentimental items is “Who Gets Grandma’s Yellow Pie Plate?” A description of this workbook is available at:

http://shop.extension.umn.edu/PublicationDetail.aspx?ID=1002

If one does not have web access or is not computer savvy, the OSU Extension Office, Hocking County will reproduce the fact sheets, place them in a three ring notebook and mail the twelve fact sheets. Also, the Who Gets Grandmas Yellow Pie Plate Workbook can be included.

The twelve fact sheets in a three ring notebook are $30 (for over 100 pages) and $8 for the Workbook (95 pages). To order send check and address to OSU Extension, Hocking County, 150 N. Homer Ave., Logan, OH 43138.

Pricing Drought Stressed Corn Silage

The value of drought-stressed corn silage can be estimated using expected nutrient composition and the cost of the nutrients. The average composition of drought-stressed corn silage in Table 1 is reasonable, but the composition of silage for a specific situation (e.g., hybrid, growing conditions, etc.) could be substantially different. The nutrient values were calculated based on numerous feed prices in central Ohio .

Table 1. Average composition of drought-stressed corn silage and current (March-July 2007) value of nutrients in Ohio .

Nutrient 1 Concentration Units/ton DM Nutrient value Value, $/ton
RDP 5.9% 118 lbs -0.116 $/lb -13.7
dRUP 2.2% 44 lbs 0.188 $/lb 8.3
nNDF 5.0% 100 lbs -0.07$/lb -7.0
eNDF 45.0% 900 lbs 0.038 $/lb 34.2
NEL 0.60 Mcal/lb 1200 Mcal 0.11 $/Mcal 132.0
Total $154/ton DM

1 RDP = rumen degradable protein (% of dry matter), dRUP = digestible rumen undegradable protein, nNDF = non-effective neutral detergent fiber (NDF), eNDF = effective NDF, NEL = net energy for lactation.

The $154/ton of DM ( + $20) or $54/ton ( + $7)assuming 35% dry matter is the value when fed to the cow and includes harvest and storage costs and shrink. If you are purchasing standing corn, the purchase price must be adjusted to account for these costs. In addition when purchasing standing corn you assume the resulting silage will be well-fermented and have shrink and nutrient composition similar to what was estimated. These assumptions do not always come true. When you purchase standing corn, in contrast to buying fermented corn silage, you assume additional risk and the price of standing corn should be discounted to account for the risk. I cannot give you a value for risk; each buyer must determine that value for himself.

Price of Standing Corn (assumed 35% dry matter)

Value of corn silage when fed to cow $54/ton of 35% DM silage

Harvest and storage costs     – $12/ton

Shrink (10%) – $5/ton

Risk ?

Price of standing corn $37/ton ( + $5) minus the value of risk

For many people both the price of corn silage ($54/ton) and the price of standing corn ($37/ton) seems extremely high (and they are). However, you have to consider replacement costs, i.e., what will it cost if I have to purchase other feeds to replace the nutrients provide by corn silage. Also this is the maximum price a farmer should pay for purchasing corn silage or standing corn. The seller (grower) should estimate his potential gross earning per acre if he sold the crop as grain (minus harvesting costs) and that value becomes the lowest price he should sell his crop for as silage. The actual selling price should probably be somewhere between those two numbers.  Click here to read a complete article on this subject.

Farm Bill Resouces

In the months leading up to the next U.S. farm bill, various OSU experts in the Department of Agricultural, Environmental and Development Economics (AEDE) will provide analytical papers and analysis of issues being discussed. The following page will link to these papers:

http://aede.osu.edu/resources/special/farmbill/

Some recent papers included in this webpage are:

Selected Provisions for Major Program Field Crops, House Committee on Agriculture’s Bill

Administration’s Revenue Counter-Cyclical Proposal — Assessment .

Permanent Emergency Agricultural Assistance:  House Agriculture Committee Chairman’s Mark

Selected Proposed Farm Bill Provisions for Major Program Field Crops, House Agriculture Committee Chairman’s Mark

Wages and Benefits for Farm Employees

Wages and benefits for farm employees are not only important to the employees themselves but to the employers as they attempt to provide fair compensation for the duties performed. With very little data available addressing issues of average compensation amounts, value of benefits provided and hours worked per week this survey was conducted to collect and share baseline data for farm employers and employees.

A survey was conducted in early 2007 to gather data on farm employee wages and benefits in Ohio . The “Wages and Benefits For Farm Employees” study was conducted by distribution of surveys by Extension Educators, Agricultural, Environmental and Development Economics Faculty and Staff and allied organizations. Surveys were returned and summarized for 122 farm employees in early 2007. Data was collected for each employee on education, years of experience, type of general farm duties, days per week worked, hours per week worked, time off (holidays, vacation, sick leave and personal days), wages paid in cash, fringe benefits (vehicle, farm produce or commodities, meals, clothing, insurance, housing, continuing education, recreation, vacation, retirement plan, use of machinery and equipment), and bonuses. Data was collected on farm size by gross sales and type of farm.

In this study we collected data for full-time and part-time farm employees. According to this survey, it was found that the average value of cash wages paid to full-time farm employees is $28,392 per year. (See Table 1.) The average value of benefits is $4268 per year and the average value of bonuses is $793 per year. Adding these three figures together amounts to a total compensation of $33,453 per year for full-time farm employees.

Full-time farm employees average 12.3 years of experience and 8.4 years of tenure at their present workplace. Full-time workers average 2463 hours worked per year. This data enables us to calculate the average wage per hour and total compensation per hour. The average wage for full-time farm employees according to this study is $11.53 per hour and the total compensation for full-time farm employees is $13.58 per hour.

Part-time employees average $9.01 per hour of cash wages. Their benefits average $1,110 per year and their bonuses average $194 per year. Part-time employees average 7.9 years of experience and 5.3 years of tenure at their present workplace.

The distribution of wages for full-time employees is presented in Table 2 and shows the large majority of full-time employees earn between $20,001 and $40,000 per year (77.22%). Full-time employees earning between $25,001 and $30,000 per year in wages comprised 27.85% of our surveyed population and was the largest subset in the distribution. The second largest subset of full-time farm employees fell in the $20,001 to $25,000 per year range.

Summary data presented in this paper is the first in a series of papers examining the findings of this research study. Further articles and papers will be available through the Ohio Ag Manager Newsletter ( http://ohioagmanager.osu.edu/ ), Ohioline ( http://ohioline.osu.edu/ ), and the OSU Department of Agricultural, Environmental, and Development Economics Farm Management ( http://www-agecon.ag.ohio-state.edu/ ).

Increased Section 179 Expensing and Federal Minimum Wage

Federal tax law changes come throughout the year, sometimes within legislation that would seem odd.  For example, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007, H.R. 2206, includes small-business tax relief and an increase of the minimum wage.

For 2007, the Section 179 Expensing deduction increased to $125,000 which is an increase from $112,000.  Beginning in 2008 through 2010 the annual limit will increase for inflation by $1000 increments.  In 2011 Section 179 returns to $25,000.  The phase-out amount increases to $500,000 for 2007 (up form $450,000).  For every dollar invested in qualifying property above the phase-out limit, the Section 179 deduction is also reduced by $1.  In other words, if $625,000 or more is invested in Section 179 qualifying property, no Section 179 deduction would be allowed in 2007.  The phase-out amount will also be adjusted for inflation, but by $10,000 increments.

The Federal Minimum Wage will rise from $5.15 to $7.25, an increase of $2.10 per hour, over the next three years (.70 per year).  On July 24th of this year, the Federal Minimum Wage rose to $5.85.  In July of 2008, it goes to $6.55 and $7.25 in 2009.  Ohio’s Minimum Wage rate is higher, at $6.85.  However, Ohio employers grossing less than $250,000, or employing labor under 16 years of age, shall pay no less than the Federal Minimum Wage.  Ohio has a poster about the state’s minimum wage at:

http://www.dot.state.oh.us/CONTRACT/PDF/Posters/MWPoster.pdf

Organic Certification in Ohio

Many farmers are exploring the possibility of raising organic crops or livestock.  There are several organizations that certify in Ohio, farmers must know the requirements of their organic market before beginning the certification process. Countries such as Japan and EU have specific requirements that may differ from US certification. To help farmers with questions on organic farming, OSU Extension has written a factsheet to help producers learn more on how to obtain their organic certification.
Click here to access OSU Extension’s fact sheet on the organic certification process.

Planning for the Transition of Your Agricultural Business

As the age of farm operators increases, transferring the ownership and management of the family business to the next generation will become one of the most important issues farm families will face. While many farmers dream of seeing their legacy passed onto the next generation, many postpone initiating a plan for the transition of their business for a variety of reasons. Many claim that there is not enough “time” to discuss these matters. Or if planning does occur, it simply involves the senior generation drafting a will describing how the farm assets should be divided among heirs. The main question which the principal operator of a farm or agribusiness should ask is:
“Do I want to pass my farm operation to my heirs as an ongoing business or do I want to pass it on as a group of assets?” This article discusses the issues that farm families should address as they develop a plan to transition the family business to the next generation.  Click here to read OSU Extension’s Transition Planning Worksheet.