Should we incorporate farm / property?

Question

My father has about 80 acres of land and has recently retired. He needs to either sell the land or figure out a way to supliment his social security income. He would like to keep the land so that his children can inherit it..this is the idea he came up with and we need advise on if it is advisable to do this

He would like to incorporate the land and have us kids (9 of us) buy shares...from what I understand this can cause some complicated tax issues (double taxation as well as step up when property is sold)...is there a better way to handle this? Could my father maybe have a will that is updated regularly that would provide payback to each child what they are able to help with (some can do more than others, some not at all)...this would assure those of us who help our parents out that we are going to get a return and maybe give the incentive to the children who are not helping them out currently...does this make sense? Please Help!

Answer 1

You might want to look into a "trust". I would think he could set up a situation where different beneficiaries rec'd different percentages based on their contributions to his well being over a certain period of time. Just a thought.

Answer 2

The best thing to do is create a "family limited partnership".

The whole point of creating such a partnership is to make sure that the assets at date of the contributor's death (your Dad) is excluded from the estate tax return.

In order for the family limited partnership to be excluded from estate tax, it must be set up properly. It must be set up by professionals, attorneys and CPA's, that specialize in
this type of entity.

A very important aspect of family limited partnerships is the use of "crummy" powers
within the partnership agreeement. If the "crummy powers" are set up in the correct way, your family limited partnership will be "audit proof" and no Tax District Court can
dissolve the partnership. The family limited partnership has become in the last few years a very popular entity to audit. In my experience, the lack of "crummy powers"
have often been the reason for a FLP to be disssolved - and therefore, subject to the Estate Tax.

Find professionals that specialize in this entity.

A consultation will run you about $ 2,000 - $ 2,500. It is well worth it.

Answer 3

Selling the land before his death by any method including a family corporation or partnership is a bad idea since he would have to pay capital gains tax. If he keeps it until death the stepped up basis will avoid capital gain taxes for the children. The simplest method for some children to help him and get paid back later by his estate is to use promissory notes for every loan you give him. Keep the notes in a safe place - they must be paid back after his death or deducted from the shares of the others.

Answer 4

You'd be way ahead to spend a couple hundred dollars and talk to a lawyer about this situation rather than depending on answers you might get here from people who don't know the law or your total situation.