A 1031 exchange (a like-kind exchange) is a swap—one investment or business asset for another. While most swaps are taxable as a sale, if you stay within the perimeters of Section 1031 of the Internal Revenue Code, you’ll either have no tax or limited tax due at the time of the swap.
Essentially, you can change the form of your investment without recognizing a capital gain which allows your investment to continue to grow tax deferred. Because there’s no limit on how frequently you can do a 1031 exchange, you can roll over the gain from one piece of investment real estate to another to another and so on. Although you may have a profit on each swap, you avoid tax until you actually sell the investment for cash down the road.
Here are a few things to know about a 1031 exchange:
Within 45 days of the sale of your property, you must also designate replacement property in writing to the intermediary, specifying the property you wish to acquire. The good news is that you can designate multiple properties so long as you eventually close on one of them.
It is important to know that you must close on the new property within 180 days of the sale of the old property. Note that the two time periods mentioned run concurrently, which means time begins to run the day your property sale closes. For example, if you designate replacement property exactly 45 days after you close on your property, you’ll have exactly 135 days left to close on your replacement property.
If you have cash left over after the intermediary acquires the replacement property, the intermediary will pay it to you at the end of the 180 days. That cash will be taxed as partial sales proceeds from the sale of your property.
As you can see, a 1031 exchange, while being a very beneficial tool, can be daunting and rule-intensive. Before jumping in head-first, seek out a legal profession who can guide you through the process.
Passing on a family farm is no simple feat.
Most farm families don’t know where to begin when thinking about the future of their farm. Let’s face it, determining how to sustain the farm operation for later generations and how to divide the estate fairly among kids is difficult. This gets particularly tricky when some kids are working the farm and others are not.
To avoid a confusing mess, building a detailed succession and estate plan for the family farm is essential. Families that fail to put proper planning in place put both family harmony and their most valuable asset at risk.
So perhaps you’re asking yourself, “How can a family pass the farming operation—and access to the land and equipment necessary to run it—to a farming heir without neglecting non-farming family members?” Fortunately, there are several ways to accomplish this goal. Three of the most common options available include:
The farming heir can purchase the farm from his/her parents once they’ve reached retirement age, and the proceeds can then be incorporated into the parents’ estate plan and divided among heirs accordingly. However, there are drawbacks to this approach. The purchase can result in capital gains and recapture taxes for the parents, which reduces the value of what they’re able to pass on once they pass. Additionally, it requires that the farming heir have access to large amounts of money or take out significant debt to complete the purchase.
Alternatively, the farming heir can purchase the farm after both parents’ pass. This allows him or her to take advantage of estate planning rules which eliminate the capital gains tax, because the farm receives a step-up in basis after the parents’ death. However, the heir may have to pay more for the farm at the parents’ death instead of their retirement because the farm’s value can increase during that period of time.
The most popular way to achieve longevity of the family farm and equity among the children is to create a LLC, a limited liability company. By placing the family farm in an LLC, parents keep the farmland together—which benefits the farm heir. The parents give individual units equally to each heir while allowing the farming heir the right to rent or crop share with the other heirs for his or her lifetime or another specific time period. With this technique, specifically stating the mechanism to establish the heir’s rental rates or crop sharing arrangement in the estate plan is crucial. The more specific the terms, the less room for ambiguity and family arguments.
No matter which option farm families ultimately choose, it’s crucial to have a detailed, formal plan in place which outlines terms and, when possible, minimizes taxes.
Estate planning is more than achieving tax savings for the wealthy--it's something else altogether--and everyone over the age of 18 needs at least a little estate planning.
Let’s start by defining plain old estate planning. There are two parts to it.
First, an estate plan identifies the people you want to benefit from your assets. Owning “assets” is not the same as having “a taxable estate.” (More on that in a minute.) Your assets include your bike, car, house, furniture, personal items, checking account, savings account, retirement accounts, life insurance and business interests. While people tend to think that estate planning is morbid, it’s actually about life and making sure that your assets provide support for the people you love. It isn’t about controlling from the grave, it’s about creating opportunities that continue to give benefit for years to come.
Second, an estate plan identifies the people you trust to take care of yourself and your assets if you’re unable to do so. This includes identifying someone to pay your bills (your agent under power of attorney), manage your accounts (your executor or trustee, depending on whether your plan uses a trust), and interact with doctors (your health care agent). If you have young children, this also includes naming someone to raise them (your guardian). These are by far the most important decisions you’ll make as you create your plan, and it’s crucial to identify people who have the time and temperament to take on these tasks.
So why do we say that everyone over 18 needs at least a little estate planning? Let’s consider life in stages.
When you’re in college, you may consider yourself dependent on your parents, but the legal system doesn’t. As an adult, you are entitled to identify the people you want to make health care decisions for you if you can’t. To avoid confusion, every 18-year-old should have a health care power of attorney, which can include instructions about life support. Similarly, every young adult should sign a durable general power of attorney identifying the person who steps into his or her shoes for all other purposes, including accessing bank accounts and school records.
Right after college, you’ll start to acquire assets, the most common ones being retirement plans and employer-provided life insurance. Beneficiary designations filed with the plan administrator or insurer control the eventual distribution of such assets, but it’s still important to have an effective general power of attorney authorizing someone to make decisions about the assets if you become unable to do so. As you acquire other assets, it becomes important to give instructions about who should receive them upon your death.
Once you get married, your spouse moves to the top of the list of people who should manage your assets and make health care decisions if you can’t. But, again, it’s best not to rely on default rules. Update your health care power of attorney and your general power of attorney so your decisions are clear so your spouse and your parents don’t end up locking horns. And think very carefully about how you take title to assets after you’re married. It’s incredibly easy to take title jointly because that means the survivor automatically inherits the asset if one spouse dies. But joint ownership gives the survivor absolute control over where assets go after his or her death. If you want assets to pass to specific people after your spouse’s death, then get advice about establishing a trust.
Having kids is a great joy, but nothing else is as good at making you feel the responsibility of adulthood. You now have the task of deciding who will raise the kids if something happens to both parents while they are young. It’s time to add guardian nominations to your will. Although parents often struggle with this decision, the choice is often easier than expected. If you ask the new parents to write down the list of possible guardians, the lists will likely contain the same group of people. Narrowing down to the top one or two choices seems daunting, but the job gets easier if you shift your focus to the kids of the potential guardians. Once you realize that a couple of your choices have not only made it onto your list but they’ve raised kids you’d like to be role models for your kids, then the choice becomes pretty clear. As part of the same exercise, you need to decide who should manage the assets you’ll leave to your kids, and you’ll almost certainly want to establish a trust so you can give instructions about how those assets should be used to support your kids while they are young. Keep in mind that these can be different people. You can choose one person to raise your kids and someone else to manage assets for them.
Estate Planning is about making decisions concerning your life instead of relying on default rules written by a team of legislators. It's also about putting the people you trust in charge instead of letting someone else (like a judge or a doctor) take over.
Overall, It’s about staying in control.
Adapted from Mark Powell's article, Financial Planning, Personal Finance Essential, found at: https://blog.personalcapital.com/whitepapers/estate-planning-isnt-just-about-taxes/?displayMobileNavigation=0.
PLEASE JOIN US IN CELEBRATING OUR 10 YEAR ANNIVERSARY!
WED., SEPT. 25TH, 2013
1 P.M. - 6 P.M., COME & GO
TAMARA L. DAVIS, P. A.
107 LAYTON ST., STE. A
DODGE CITY, KS 67801
Serving the community needs in estate planning, probate, trust administration, and small business succession planning.
Local Law Firm Marks 10th Anniversary
Tamara L. Davis, P. A., a law firm with offices in Dodge City and Ulysses, KS, marks its 10th year of legal practice and is holding an open house for clients and business associates on Wednesday, September 25, 2013, at 107 Layton, Ste. A., Dodge City, KS to celebrate the event. The “come and go” open house will run from 1:00 p.m. to 6:00 p.m. to greet those who have been part of the firm’s success.
Tamara L. Davis, P. A. assists clients in estate planning, probate, small business succession planning, trust administration and related matters. The firm opened in 2003 with one attorney and one legal assistant, and has grown to employ three attorneys, Tamara L. Davis, Megan L. McCann and Jessica L. Stoppel, and two legal assistants, Julie Durler and Mary Beth Helfrich. Gabee Figueroa is the firm’s part-time receptionist and Rae Anna Bolmer is the company bookkeeper.
Davis received her Bachelor of Business Administration and Finance Degree in 1985 from Wichita State University. She is a 1990 graduate of the University of Tennessee College of Law, where she graduated with High Honors. Davis has served on the Board of Editors of the Journal of the Kansas Bar Association. She was appointed to the Kansas Continuing Legal Education Commission by the Kansas Supreme Court in 2004, where she served two terms. Following her tenure on the CLE Commission, she was appointed to the Kansas Board of Law Examiners by the Kansas Supreme Court. She is the immediate past-president of the Ford-Gray County Bar Association, and is a member of the Southwest Kansas, Kansas and American Bar Associations. Davis is a frequent lecturer on the topic of Wills, Trusts and Estates. She is also involved in local community and civic activities. She currently serves as a Director on the board of the Hospice of the Prairie, Inc., and is involved in many other local organizations.
McCann is a native of Cimarron, Kansas. She received her Bachelor of Accounting Degree from Kansas State University in 2006 and her Jurisprudence Degree from Washburn University School of Law in 2008. McCann is a member of the Ford County and Kansas Bar Associations.
Stoppel is a native of Gorham, Kansas and is a graduate of Russell High School. Stoppel attended Kansas State University where she graduated Magna Cum Laude with a Bachelor of Science degree in Marketing and Leadership Studies in 2009. She received her Juris Doctor degree from the University of Denver, Sturm College of Law in 2012.
Tamara L. Davis, P. A. provides legal services to clients from nearly all of the counties in the western half of Kansas. The firm most recently opened a satellite office in Ulysses, KS in July, 2013. The firm also is a member of Wealth Counsel, a national association of estate planning attorneys.
The Tamara L. Davis, P. A. Law Firm Joins WealthCounsel Colleagues in Promoting National Estate planning awareness week, october 17-23, 2011
Dodge City, KS, Oct. 14, 2011 – Tamara L. Davis, Esq. of Tamara L. Davis, P. A. announced today that she is joining her colleagues at WealthCounsel in a public relations campaign to showcase National Estate Planning Awareness Week, October 17-23, 2011.
According to a 2010 industry trends survey of estate planners conducted by WealthCounsel, nearly 70% of the respondents indicated that Americans fail to plan because they lack awareness as to why they should. Davis is passionate about building awareness of the importance of thoughtful planning and is committed to educating the public about the negative consequences of what can happen to one’s loved ones when the proper documents are not in place.
Davis noted that estate planning is one of the most overlooked areas of personal financial management. More than 120 million Americans do not have proper estate plans to protect themselves or their families in the event of sickness, accidents, or untimely death. This costs many families wasted dollars and unnecessary hardship that can be minimized with proper planning.
In 2008, the National Association of Estate Planners and Councils (NAEPC) worked with Congress to pass a resolution proclaiming the third week in October as National Estate Planning Awareness Week. The resolution noted that “Many Americans are unaware that lack of estate planning and financial illiteracy may cause their assets to be disposed of to unintended parties by default through the complex process of probate.”
Davis has been practicing law since 1990 and prior to opening her own firm in 2003, was associated with Foulston Siefkin, LLP. She focuses her practice in the areas of Estate Planning, Family Business/Small Business Succession Planning, Trust Administration, Probate, Elder Law and related matters. For more information, contact Davis at 107 Layton St., Ste. A, Dodge City, Kansas, 620-225-1674.
Tamara L. Davis, of the Law Office of Tamara L. Davis, P. A., has joined the National Academy of Elder Law Attorneys, Inc. (NAELA). Membership in the Academy is open to licensed attorneys who are practicing in the area of elder law or who are interested in legal issues pertaining to the elderly.
Established in 1987, the National Academy of Elder Law Attorneys (NAELA) is a non-profit association that assists lawyers, bar organizations and others. Members of NAELA are attorneys who are experienced and trained in working with the legal problems of aging Americans and individuals of all ages with disabilities. The mission of the National Academy of Elder Law Attorneys is to establish NAELA members as the premier providers of legal advocacy, guidance and services to enhance the lives of people with special needs and people as they age. NAELA currently has more than 4,700 members across the United States, Canada and Australia.
Tamara Davis, a Dodge City attorney with offices at 100 Military Plaza, Suite 208, Dodge City, Kansas, focuses her practice in the area of Elder Law, Estate Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration and related matters.
Ms. Davis received her Bachelor of Business Administration and Finance Degree in 1985 from Wichita State University. She is a 1990 graduate of the University of Tennessee College of Law, where she graduated with High Honors. While at the University of Tennessee, Ms. Davis served on the Tennessee Law Review and was selected Order of the Coif.
Ms. Davis serves as an officer of the Elder Law Section of the Kansas Bar Association and also serves on the Board of Editors of the Journal of the Kansas Bar Association. She was appointed to the Kansas Continuing Legal Education Commission by the Kansas Supreme Court in 2004. She is a past president of the Ford-Gray County Bar Association, and is a member of the Kansas and American Bar Associations. Ms. Davis is a frequent lecturer on the topic of Wills, Trusts and Estates. She is also involved in local community and civic activities, serving as a Director on the boards of Hospice of the Prairie, Inc. and the Depot Theater Company.
For more information about NAELA, please call 520-881-4005 or visit www.naela.org.
NEWS YOU CAN USE
Davis & McCann, P. A.,