We were recently interviewed for The Working Ranch Radio Show on SiriusXM. A listener asked a great question: What type of legal ownership should you have for your ranch and property?
The short answer is “It depends…” The complete answer involves asking the “right” questions. And it starts with this one: What is important to you?
As we speak, we are helping: a son continue the success of his dad and grow the ranch; a son working to get his farm to his daughter and still have enough resources to retire; a mom pass down a ranch to a son, but not disinherit another son; two second-generation ranchers sell in the most tax efficient way; a recently retired rancher downsize; and another retired farmer simply stay retired.
The point is, you need to make sure you have the flexibility you need when you need it.
Recently, we were brought in to help a farmer who needs to sell his land. A 60% tax bill was looming due to the ownership structure. We have a saying about that…You don’t know what you don’t know, and what you don’t know that you don’t is often the one thing that will end up biting you later…
So, what are the pros and cons of the different types of legal ownership titles to your property?
There are too many to mention and too many gray areas due to the uniqueness of each situation, but following is a brief run down:
- Sole Proprietor: Nothing is as simple as a Schedule F, but not so great for a lot of tax planning or asset protection.
- S-Corporation: This is better for income tax planning and asset protection, but not so friendly when it comes to selling or estate planning.
- C-Corporation: It is the most “asset protection” friendly, but you need a really good reason to have one. This not so tax friendly structure may be resourceful for operations with many shareholders and a more corporate structure.
- Partnership: This ties with an S-Corp for income tax planning and is better for selling or estate planning. However, there could be less asset protection.
- LLC: This can be taxed as an S-Corp or Partnership so income tax planning will align with how it is taxed. It also is similar on an asset protection level. This is the most flexible structure for selling and estate planning.
Another question asked: What will you be funding it with? Land or Operations? Putting your land and operations in the same entity is not a great asset protection plan, and it isn’t tax friendly either.
Not planning is a plan. If your hay equipment needs to be serviced, do you wait until you see smoke? The bearings could go out in your plan and you not even know it. Take the time to service it. We are here to help!
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.