Sunday, September 30, 2007
Steamboat Springs Whether for one's peace of mind, for business planning or for estate planning, a full and complete inventory of assets is a critical first step. For a farmer or a rancher, this effort can be especially challenging, because of the nature of some of the assets that are held. The preparation of an inventory that includes the "living" assets such as animals or crops may highlight the fact that there needs to be a contingency plan for someone to take over an agricultural operation on very short notice. An inventory can help.
This effort can be broken down into three basic components - a list of conventional assets (property, bank account, etc.), a list of farm/ranch assets (cattle, sheep, hay, etc.) and a list of assets that are difficult to categorize and difficult to value.
Preparation of this list should be relatively easy. These are the assets that must be disclosed to a bank or to a mortgage lender, as part of a loan application. In brief, general terms, these are the real estate holdings, the bank or investment accounts, the insurance policies, and the vehicles.
The Farm/Ranch Assets Preparation of this list tends to be more difficult, because it is rare that someone asks for this information and the only forms that come close to this are government-surveys which ask impossible questions like "number of animal units on your property in 2006" or "tons of hay per acre on your mixture of dry land and irrigated meadows."
An inventory of farm/ranch assets should start with equipment, including related accessories and tools. Whatever is living and growing should be taken into account - acres of hay land in production, cattle or sheep that are owned and any other production assets. The rancher may own a brand. There may be animals such as dogs, llamas or horses that are used to move or guard livestock. These assets may include water rights, leased lands, government production agreements, grant agreements, conservation easements, cooperative agreements (written or not) with neighbors and agreements with haulers or suppliers.
In addition to those assets described above, the farmer or rancher may have established a corporation, a family partnership, or a limited liability company. There are likely insurance policies, which may cover property, general liability, life, health, disability and others. There may be a business plan and there may be an estate plan (including documents such as wills, trusts, living wills, living trusts and powers of attorney) which represent significant investments.
This last type of asset suggests that the farmer or rancher has sought some professional assistance for business and likely for estate planning. With today's pace of change the drastic increases in property values and the changing estate tax situation, an inventory should be completed and reviewed annually. A more thorough review should be done within the next two or three years as changes are hopefully made to the federal estate tax rules.
Rich Tremaine is the co-chairman of the Community Agriculture Alliance, and practices law in Steamboat Springs. This article was prepared from notes that he uses for the Land Stewardship classes that are presented annually by the Community Agriculture Alliance.