← FarmCPA Home

Present is Better Than Future!

By: | Trackback URL | 2 Comments

June 6th, 2012

Many farmers have created limited partnerships or limited liability companies (LLC) to hold their farmland.  As part of this process, gifts are made to children and grandchildren for estate planning purposes.  For 2012, each person can give $13,000 (most likely rising to $14,000 in 2013) to as many people as they want and not have this gift counted toward their lifetime gift exemption amount (currently $5.12 million).  However, in order for this annual gift annual exclusion to count, the gift must be of a present interest, not a future interest.

A present interest is “An unrestricted right to immediate use, possession, or enjoyment of property or the income from the property”.  A gift of cash, stock, land, etc. is a present interest. 

A future interest is a more technical term related to some delay in the donee being able to use the gift.  For example, if the donor retains the use of the property for ten years and then it transfers to the donee, this is considered a future interest and the donor would not be able to use their annual exclusion amount.

In a recent case of the Estate of George Wimmer, the Tax Court decided in the favor of the taxpayer regarding the gifts of limited partnership interests.  The key rulings of the case deciding the gifts to be present interests were:

  1. The partnership would generate income (it owned dividend paying stocks),
  2. Some portion of that income would flow steadily to the limited partners (the partnership had a history of distributing income to its partners), and
  3. The portion flowing to the limited partners could be readily ascertained (since the investments were in dividend paying stocks, they could readily determine the amount of income generated)

In applying this case to our farm clients, it is very important that any gifts of limited partnership or LLC interests be structured to meet all three tests.  If the farmland is being rented on a cash basis and there is a history of making at least annual distributions, then you should be able to use your annual gift tax exclusion.  However, if income is very sporadic and there is a history of no payments to limited partners (i.e. the general partners take all of the income to live on), then you are at a much greater risk of losing the annual exclusion and may have other tax consequences as well.

Paul Neiffer

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

More Posts - Website

Follow Me:
Twitter

← FarmCPA Home

2 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to this blog by:

Previous Posts

Events

View upcoming speaking engagements and other networking events for Paul Neiffer and CliftonLarsonAllen’s agribusiness team.

See All

  • Twitter Feed

    When "bullish" corn reports lead to flat closes what is Mr. Market telling you. Be careful. 1 week ago

    2010 spring corn price was $3.99. Only four years ago. 2 weeks ago

    Two good days to lock in decent prices on corn and beans. Did you take advantage of the opportunity 2 weeks ago

    Very little change on corn intentions in key corn belt state. Almost all reductions in fringe states such as ND down 1 million acre 3 weeks ago

    North Dakota up 1 million Minnesota up 700k and Nebraska up 600k represent almost half of the 5 million increase in bean acres 3 weeks ago

    Just spoke for 45 minutes on new farm bill to a group of 100 Minnesota and Wisconsin Co-op board members. No one fell asleep. 4 weeks ago

    Hard to beat spring time in the Pacific Northwest. 4 weeks ago

    Kansas City can be windy this time of year. Just got done taping with a farm family. Check it out on #agday next Friday 1 month ago

    I think spring has sprung in our area. 1 month ago

    April hogs 116 limit up! Can they hit 120 1 month ago