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Father owns farm. He has six children. What is the difference between getting the farm incorporated vs. a trust for heirs?

Atlanta, GA |

Properties, farm and six children - Don't know whether to set up a trust of get the farm incorporated? What are pros and cons for both? Two siblings have mostly funded the operation as of late by paying for this or that. How would their interest be protected under the 2 scenariors? Father is still living. Thanks.

Attorney Answers 4


  1. Best answer

    Estate planning can be a complicated, and sometimes confusing process. I would recommend sitting down with an attorney, and possibly a tax expert, to discuss the options available to you before proceeding with either of the options you mentioned. You want to ensure that the estate receives all available tax benefits and that the beneficiaries do not incur any unnecessary financial/tax obligations. If the father has any medical conditions that may require treatment down the road, he may want to look into a trust that would remove the property from his estate now but not transfer to the children until his death. If the properties remain in his name and he requires medical treatment later on, medicaid can, and likely will, place a lien on the property to recover any funds expended on the father's behalf.


  2. Both may be bad ideas if the transaction results in a gift. When a person receives a gift they get a carryover basis in the property. This would be a problem if dad has bought the property a long time ago and it is worth a lot more now. If the property is transferred at death, then the recipients get a step up in basis to the date of death value. This will result in little or no gain if the farm is sold after his death. For more on gift issues see Gift Giving: Tax Advantages at the following link: http://www.sjfpc.com/gift_taxes_planning.html. Also read IRS Checking Real Estate Transfers For Unreported Gifts for further perspective at http://www.sjfpc.com/IRS_Auditing_Real_Estate_Gifts_Tax_Rules_Returns_Form_709.html

    Now there are other practical and business consideration that you raise that may be addressed via some legal vehicle that you mention, but you need to get dad with an estates attorney to discuss this in more detail and to look at what is best for your particular facts and family situation.

    LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.


  3. Both answers given were excellent advice. You may think you have asked a simple question but you have not. How this is structured, aside from the tax consequences also matters from a "power" perspective. Depending on how a trust is set-up, it could actually provide your father with more control over the farm, until he passes, than a corporation. Of course, a trust is generally less flexible than a corporation. Apples and Onions and the type of scenario that requires extensive analysis and consultation and cannot be answered on this website.

    The information is for general information purposes only. Receipt of this information or e-mail from our website, or other communications should NOT be construed as legal advice for any individual case or situation, nor the formation of an attorney-client relationship.


  4. I agree with all the comments made so far. Basically, you asked a loaded question which is not easily answered, because it depends on many factors in your, your father's and your siblings' situations. I should note that you almost never want to place land in a regular C corporation because of double tax potential. If you end up placing the real estate in an entity for one or more reasons in this case, it will more than likely make sense to contribute the property to a limited liability entity of some type, likely either an LLC or LLLP, with a possibility of using a S corporation. However, this situation starts and ends with this being an estate and tax planing matter for your father and this includes the on-going operations of the farm property and eventual succession. I highly recommend that legal assistance is obtained in this regard. Good luck.

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