Life Insurance, Trusts and Giving in Estate Planning

Life insurance can be used as an estate planning tool and can be used to avoid probate. Since a beneficiary is designated proceeds bypass probate. Life insurance owned by someone other than the deceased and with beneficiary designation other than the deceased or spouse can also be used to bypass Federal estate tax, which is important only for those very rich. Life insurance can also provide liquidity needed for estate settlement costs if it is the wish of the heirs not to liquidate other assets to pay for such costs.

Trusts have been around for some time and are increasingly used by the less wealthy. The most common use of a trust is to provide cash flow and to support the surviving spouse (most often the widow) with the proceeds of assets passed directly to the next generation.

Trusts come in many different forms and types. Some trusts are living, that is are set up during the trust makers life and not by a will. Living trusts may be funded during the trust makers life or by a will. Likewise, living trusts may be revocable or not, that is the trust maker may be able to get those assets given to the trust back or may not be able to do so.

Trusts in the past were commonly used to protect assets from being used to pay for extended nursing home stays, but have become less popular as restrictions and regulations to preclude that have been developed. None the less, to have a chance of asset protection from nursing home protection, assets must be completely given away with no control or recall by the  giver at least 5 years before application to Medicaid for nursing home assistance. This is true if given to a trust, charity or individual.

Giving is perhaps the most under rated estate planning tool, but has advantages and disadvantages. When giving appreciated property, the old value of that property, when bought or last passed through estate proceedings goes with that property. So no appraisal or transfer cost is assessed but likewise the value of the property is not “stepped up.”

If appreciated property is then sold after being given from generation to the next generation to the next, transfer costs will be postponed with the last in line having more capital gain tax liability if and when sold.

However, if before being sold appreciated property is willed or passed through an estate, a current appraisal will be done with the new value established at current market value. Upon immediate sale, there will be no capital gain liability. However, that asset will have been assessed the estate transfer costs. Depending on the size of the estate and income level of the taxpayer, it may be advantageous to have appreciated assets pass through an estate settlement process.

Another often misunderstood concept on giving is that one can give no more than $12,000 per person per year or $24,000 for a couple. Yes, if an individual gives more than that amount a Federal gift tax form must filed. Yes, if one is very wealthy the amount given per person per year over $12,000 ($24,000 for a couple) can result in more Federal estate tax being assessed. But for those with assets less than $1 million or $2 million for a couple, federal income tax is not an issue, so giving more may be appropriate.

A series of twelve fact sheets on basic estate planning can be downloaded for free from the OSU Extension web site, by clicking on the “fact sheet” 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:

If one does not have web access or is not computer savvy, the OSU Extension Office, Hocking County will reproduce all of the twelve fact sheets, place them in a three ring notebook and mail or they can be picked up at the OSU Extension Office. The price of fact sheets is $30 (for over 100 pages) and $8 for the Who is Going to Get Grandma’s Yellow Pie Plate Workbook (95 pages). To order send a check and request to OSU Extension, Hocking County, 150 N. Homer Ave., Logan, OH 43138.

Topics of all fact sheets are as follows: 1) Treat children equally or equitably? Continuing a viable business? Spend down during retirement or save for heirs? 2) Costs of Estate Settlement, 3) Capital Gains,  4) Wills, 5) Letter of Instruction, 6) Life Insurance,  7) Trusts, 8) Giving, 9) Sale of Residence, 10) Nursing Home, 11) Medical Insurance, 12) Other, such as Conservation Easements.

The Economics of Contracts for Non-Economists

The use of contracts is becoming increasingly common across a range of agricultural commodities from broilers, turkeys, and hogs to various fruit and vegetables. Economists devote considerable attention to the study of contracts but have done a relatively poor job of communicating this research to end users and practitioners. Most successful business people, farmers, and policy makers in agriculture have a sound understanding of the basics of supply and demand, marketing, finance, hedging, etc., but it becomes increasingly important that they also gain a sound grasp of the basics of contract economics. The purpose of this bulletin is to introduce the fundamentals of contract economics to help managers and farmers understand the basics of contract economics. To learn more, see:

Dairy Management Workshops Planned

It may seem a long way off, especially as you are managing the fall harvest, but winter will be here before we know it and along with it comes a variety of outstanding Extension workshops and educational seminars to help you be a better dairy producer. This winter will be no different. A team of Ohio State University Extension educators and specialists applied for and successfully obtained a grant from the USDA North Central Risk Management Education Center to develop a three-day workshop to address three important topics all dairy producers will face. The workshops will be conducted at four locations across Ohio and are targeted at those producers who expect to be in the dairy business for the next twenty years.

Each day has its own theme and will address specific issues related to the successful management of a dynamic dairy industry. I am a Manager, is the theme of day one at all locations. This session will provide you the opportunity to learn more about yourself and those around you by completing a “Colors” exercise, identifying goals for your business, and developing a mission statement for your farm.

The theme for day two is Information I Need to Be a Better Manager and will focus primarily on the economics of dairy production and what future managers will need to know and understand as the industry changes. Topics will include determining your cost of production, evaluating business alternatives, and developing budgets for the business.

The final day is titled Managing for the Future . This session will focus on two important functions of operating a dairy business: having a well developed business plan and the need to manage labor.

Workshop dates and locations include: Ashtabula County on February 25 and March 3 and 10; Mahoning County on March 12, 19, and 26; Wayne County on March 13, 20, and 27; and Mercer County on February 13, 20, and 27.

Along with funding from the North Central Risk Management Education Center, an excellent group of co-sponsors has realized the need for this educational program and have agreed to assist with promotion and recruitment efforts. Our co-sponsors include: Farm Credit Services, Ohio Dairy Producers, Dairy Farmers of America, Land O’Lakes Purina Feed and Affiliated Dealers and Co-ops, and the Ohio Dairy Veterinarians Association.

Registration details will be available later this fall. If you have questions about the workshops, please contact Chris Zoller (330-339-2337) or Dianne Shoemaker (330-263-3799).

Determining Grain Storage Rental Rates

With yields exceeding expectations in many parts of Ohio and the wide basis presently on soybeans, many farmers are looking for additional storage space. This creates the challenge of determining a rental rate for empty grain bins. First, contact the local elevator to determine what the current storage rate is this year. In most cases, rental for on-farm grain bins is about half the going storage rate of the local elevator. Usually elevators charge about 4 cents per bushel per month. Thus, we usually look at 2 cents per bushel per month when renting grain bins from retired farmers, etc. This could be higher this year given the market and any potential price speculation. Most data shows the total rent being 12-14 cents per bushel for the storage season (typically 4 months or so).

Secondly, the grain bin owner should calculate their overhead costs associated with renting the grain bin. Grain bins, like other capital assets, when rented should at least cover d epreciation, i nsurance, r epairs, real estate t ax, and i nterest (DIRTI) costs. Usually, it represents 12-24% of building value. Actual costs are better. A good example of how to calculate these costs can be found at

Knowing the current elevator storage rate and the overhead costs, the correct rental rate is somewhere between these two figures. A good check on the calculated price is to compare with what other farmers are paying for on farm storage. Ohio State University ‘s Barry Ward with the College of Food , Agriculture, and Environmental Sciences published the Ohio Custom Rate Survey in 2006 with grain bin rental rate information. This is available at .

This survey indicates the following rates being charged by those who responded to the survey:

Take-in plus 4 months/bushel – Average was 0.14. Range of $0.09 – $0.19
Storage/month/bushel – Average was 0.031. Range of $0.02 – $0.04
Storage/year/bushel – Average was 0.14 total. Range of $0.08 – $0.20

Questions to be addressed in the rental agreement include: are utilities included, what about aeration, for how many months, what about repairs, who is responsible for insurance (and please contact the insurance agent about possible policy changes due to a rental situation), written agreement (NCR-215 publication has an example: ), who looks after grain quality, no partnership is implied, etc.

Remember the tax implication of renting the grain bin, especially to the retired owner. The owner would be inclined to report rent on a 1040 Schedule E (real-estate rental so to avoid self-employment tax), however if it is considered a custom service or equipment rental then self-employment taxes would be taken by using a Schedule F or C for reporting income. Also, if over $600 of rent is paid, the owner will need to issue a 1099 (so a social security number will be required from an unincorporated renter).

The Ohio Ag Manager Team Remembers Steve Ruhl

OSU Extension lost a friend and a wonderful County Extension Educator when Steve Ruhl of Morrow County died unexpectedly on October 1, 2007.  Steve was an Associate Professor for The Ohio State University and served as the Agriculture Extension Educator for Morrow County and part time for Marion County. For his efforts Steve won numerous awards, which include four team teaching awards from the Ohio Chapter of Epsilon Sigma Phi and the Distinguished Service Award which is the highest award granted to an Agricultural Extension Educator in 1997.
Steve is survived by his wife, Deb and three sons: Kevin Ruhl, Jason (Christina) Ruhl both of Mount Gilead, and Brian (Chelsey Ault) Ruhl of Ontario. Memorial contributions may be made to the Steve Ruhl Agricultural Scholarship Fund, c/o First Federal Bank, 70 N. Main St., Mount Gilead, Ohio 43338.  Steve was a true “County Agent” and will be missed by OSU Extension and all the farmers he served.

Agricultural Lender Seminars Planned

Ohio State University Extension’s annual Agricultural Lender Seminars are planned for Tuesday, October 16th at Ole Zim’s Wagon Shed Meeting Room in Gibsonburg (Sandusky County) and Wednesday, October 17th at the Champaign County Extension office in Urbana. These seminars are excellent opportunities for lenders, Farm Service Agency employees, extension educators and others to learn about OSU Extension research and current agricultural topics of interest across the state.

Dr. Stephen Harsh from Michigan State University will be discussing the Economics of Wind Energy in Ohio. Dr. Harsh is an Extension Farm Management professor who specializes in the economics wind power. As interest from both farmers and the general public increases in Ohio on the issue of wind energy, this topic should provide some timely and helpful information.

Dr. Don Breece, Ohio State University Farm Management Specialists will be discussing the economics behind why the number of large livestock farms continues to increase in Ohio and the Midwest. The cost of adding a family member or employee to an existing farm operation is often considerably more than initially thought.

Ohio land values and rising cash rents will be a topic addressed by Barry Ward, Ohio State University Extension Leader, Production Business Management. As land values increase and cash rent costs increase, Barry will be discussing the impact on planting the 2008 crops. Barry will have updated crop budgets reflecting the increased costs of crop inputs including machinery, fertilizer and seed.

Dr. Matt Roberts, Ohio State University Extension Specialists in Grain Marketing, will address Crop Prices and Farm Input Costs for 2008. As the 2007 crop harvest season progresses, the true size of the nationwide corn and soybean crops will become known. The availability of fertilizer for the 2008 crop will be part of Dr. Roberts presentation.

The registration cost to attend on of the Ag Lender Seminars is $40.00 and the registration deadline is October 12th. Your local county extension office can provide a registration form or you can access it on the web at

Developing Goals for the Agricultural Business

Strategic planning from the combine seat?
Well, that usually would not be my recommendation, but for many producers those hours of solitude in harvesting equipment are a rare opportunity to dream of what their operation might become. I suggest that you write down some of those passing thoughts so that you can reconsider them later. After the rush of harvest is over, pull out that list of ideas and use them to develop goals for your business. To assist you in this process, there is a new OSU Fact Sheet entitled “Developing Goals for the Agricultural Business.”  Click here to access this fact sheet. I hope you find it useful. Have a safe and prosperous harvest.

Fair Rent Computer Program

The Center for Farm Financial Management, University of Minnesota , developed a computer program to evaluate both cash and share rental agreements.  FairRent evaluates rental arrangements based on expected yields, prices, government program payments, and expenses. The results calculate a break even cash rental rate and help develop a realistic bidding range for cash rental negotiations. The share rent results show whether sharing production and expenses will result in a fair economic return for the operator.

Sensitivity tables show how break-even bids change with varying yields and prices. All sensitivity levels interact with 2002 Farm Bill government payments to show the price protection provided by LDP and CCP payments. FairRent can also be used to calculate the yields and prices required to break even at a specific cash rental rate.

With FairRent, one can be confident that land rental decisions are based on sound financial plans. A sample of questions that may be answered include:  How much can I afford to pay per acre? What if yields are 10 percent below historical averages? Can cash costs be covered if prices go down? What yields will it take to break even at the asking price? Which is better, a 60/40, 50/50, or 45/55 share rental arrangement?

A sample output was demonstrated at the recent Farm Science Review, using a sample set of OSU budgets projecting 2008 crop prices and input costs:

– Three OSU Budgets were used for a rotation of Soybeans-Corn-Corn 2nd year.

– All costs were covered including:  interest, machinery, operator labor and management (or family living).

– Remaining available for rent from each crop (or break-even):  Soybeans $221, First Year Corn $159, Corn 2nd Year $ 95.

– The most one could bid for rent (what remains) or break-even across all crops is $158 from this three year rotation example.

– Yields for the three budgets were 177 bushels first year corn, 159 second year corn, and 55 bushels of soybeans.  Variable costs respectively were $309, $316 and $153.

– The harvest time crop prices used in the budgets were $3.25 for corn and $8.00 for soybeans.

– A local cash rental rate of $135 was used for a comparison analysis.

– Sensitivity tables show how break even bids change with varying yields and prices, to include government payments.

Cash Rent Analysis: Breakeven Cash Rent at Varying Yields and Prices

Corn Following Soybeans- Varying Yields and Prices (All Other Crops Held Constant)

Yield Per Acre
Price Per Bu. 141.6 159.3 177.0 194.7 212.4
2.60 89 105 120 135 151
2.92 105 122 139 156 174
3.25 120 139 158 178 197
3.58 135 156 178 199 220
3.90 151 174 197 220 243

Corn Following Corn- Varying Yields and Prices (All Other Crops Held Constant)

Yield Per Acre
Price Per Bu. 127.2 143.1 159.0 174.9 190.8
2.60 96 110 124 138 151
2.92 110 126 141 157 172
3.25 124 141 158 176 193
3.58 138 157 176 195 214
3.90 151 172 193 214 234

Soybeans- Varying Yields and Prices (All Other Crops Held Constant)

Yield Per Acre
Price Per Bu. 44.0 49.5 55.0 60.5 66.0
6.40 106 117 129 141 153
7.20 117 131 144 157 170
8.00 129 144 158 173 188
8.80 141 157 173 189 205
9.60 153 170 188 205 223

Varying Yields and Prices For All Crops

Yield Per Acre
Price – 20% – 10% Expected + 10% + 20%
– 20% -25 15 56 97 138
– 10% 15 61 107 153 199
Expected 56 107 158 209 261
+ 10% 97 153 209 266 322
+ 20% 138 199 261 322 383

The example used to demonstrate the FairRent program is not meant to set a price for rent for any particular farm. It is only an example of how the program may be used to evaluate YOUR particular budget estimates for the next crop year.

To purchase the program, go to . The cost for FairRen t is $95. Some Ohio Extension Educators for Agriculture & NR have the program, and may be able to demonstrate it for local farmers/landlords.