Estate Planning

Vincent Corrao, Northwest Management, Inc.

The issues surrounding Estate Planning are complex and sometimes confusing. Often landowners attach deep personal feelings to their timberland due to the years of care, hard work and enjoyment they have experienced in owning the property. When the time comes to decide the future of their forest, questions that come to mind are: How valuable is the property?, Can my heirs use the ownership the same way the family has used it for many generations? How will the land look in the future?, What will help my heirs attain their timberland goals for the future? Income production, taxes, value of the timber and timberland (determined by appraisal) and management of the property for the future resource including wildlife and aesthetics are all sources of concern for the woodland owner.

Overall, good forest management of timberland generates income while continuing to increase the value of the property. As sound forestry is implemented, land values continue to rise and timber volumes increase. This makes timberland an exciting asset that can be used for periodic income for retirement or investment purposes.
One major concern that arises in estate planning is the tax rates which can be over 50% of the value of the estate. This leads to determining exclusions for the estate such as splitting the estate, lifetime giving, value reduction through gifts, and the use of life insurance as a component of estate tax planning.

Legal entities to handle the estate include Limited Liability Corporations (LLC), S Corporations, and Limited Family Partnerships. How each one works and if its the right one for you requires legal advice and accounting services.

The timberland appraisal is critical to determine the value of the land and timber. The land value can be determined using the highest and best use criteria which is identified by an appraiser. The timber appraisal requires several steps, one of which includes a reliable cruise to determine timber volumes by species and quality. The cruise volume, species and quality of timber determines the value of the logs in today’s market. Once the value of the timber has been determined, a thorough analysis of the cost of harvesting is required. Included in the cost of harvest are other associated costs of road building, stream buffers and other State Forest Practices requirements that will effect the net value of the timber.
Another strategy and possibly an opportunity to combine a tax advantage with resource, wildlife and aesthetic objectives is to use a Conservation Easement. A Conservation Easement is a means to give up certain property rights that the landowner does not intend to use (i.e. give up development rights). These rights are donated or sold by a landowner to a unit of government or to an IRS-recognized, non-profit conservation organization for the purpose of protecting significant open space, recreation, ecological or historic resources.

There are many different combinations that can be used to develop an Estate Plan to fit your particular situation. The one most important segment of this information that has helped many landowners involved with timber in their estate is to have the timber cruised and a valuation conducted to determine how the value will effect the estate. A second helpful step is to determine what can be done to manage these lands to meet the goals set for the future.

FEATURED PROFESSIONAL: Jim Riley, Executive Director, Intermountain Forest Industry Association, ESA Reform

Featured Professional: Jim Riley, Executive Director Intermountain Forest Association

ESA Reform: A new approach for small forest landowners

There is probably no issue that has the potential to impact more individuals, businesses, and communities than the Endangered Species Act (ESA). Ranchers have been threatened by lawsuits simply because they graze their cattle near salmon spawning habitat, and the ability of private forest owners to use their land has been limited because logging activities might affect a protected species.

Millions of dollars are spent every year, and entire communities are put in jeopardy, but species are not actually recovering. In fact, of the more than 1,200 listed endangered species, less than a dozen have been delisted since the 1973 passage of the ESA.

The time has come for the ESA to treat property owners fairly; to consider the social and economic impacts to people and communities; and to truly protect rare plants and animals by making people champions of species protection rather than fearful of it. The Endangered Species Recovery Act, introduced by Senators Kempthorne (R-ID) and Chaffee (R-RI), will help meet these goals.

The Kempthorne ESA legislation proposes new options for small private landowners all of which, if enacted, should make it much easier for NIPF owners to quickly address ESA concerns. While there are probably better ideas, these concepts are a huge step forward for property owners who want some assurance that management of their lands will not be in conflict with the ESA, or those interested in adjusting management plans to benefit listed species.

Kempthorne’s bill proposes an end to the command and control approach to management from Washington D.C. and returns power and authority to local communities and land managers. It requires the release of species data to landowners upon request; provides grants for landowners to carry out implementation plans; provides a more streamlined Habitat Conservation Plan process for activities with minimal effect on listed species; and recognizes the safe harbor concept to benefit both landowners and species.

Perhaps most importantly, it recognizes that while we have a responsibility to preserve rare and unique species of plants and animals, we also have a responsibility to include the needs of people in the balance. This bill gives stakeholders a role in the recovery planning process, standing to challenge decisions that affect their lives, and protection from abuses in enforcement. At IFIA, policies effecting NIPF owners are extremely important to us. As ESA reform moves forward, we look forward to working together with small landowners to refine these ideas. If you would like more information on the Kempthorne-Chaffee bill, please feel free to call the IFIA office at (208) 667-4641.

Timberland Appraisal

By: Vincent Corrao, Northwest Management, Inc.

The appraisal of timberland is a fairly extensive and involved process. Not only does the value of the timber need to be determined, but the value of the underlying land must be determined as well.

The first step in properly determining the timber value is to obtain an accurate estimate of the timber volume. This should be performed by a professional timber cruiser that has no bias or undisclosed interest in the property. An intensive, statistically reliable cruise will give the best estimate of the overall make up of the timber on the property.

Once the timber appraiser has a reliable cruise, the next step is to determine the value of the harvestable products. The value usually is based on the market conditions within the general location of the timberland being appraised. Unusual spot markets that normally are not part of the local market trend should be used with caution. They may or may not reflect the actual market conditions.

After the total value of the timber has been determined, a thorough analysis of the costs involved with getting the product to market is needed. This analysis requires a complete understanding of harvest systems and their associated costs, road construction, production rates and State Forest Practices requirements. The underlying result of this involved analysis is the net stumpage value of the severed timber without the value of the land.

Under most circumstances, timberland value is based on the net stumpage value of the timber plus the value of the land, when the highest and best use of the land is as timberland. The appraiser will gather information on the sale of timberland in the area to determine the market trend for land. The best indication of the land value is recently sold timberland that has been cut over and shows little or no timber value. Good evidence of cut over timberland sales and comparison of each sale to the subject property focuses the appraiser on the market value of the land.

Confusion in the value of the land begins when the highest and best use of the land can be construed as something other than timberland. When recreation and rural home site development is occurring around the property, the value of the land is affected. The appraiser must take this into consideration when appraising the land. Development indicates that the highest and best use of the land may no longer be as timberland, and the value of the property may no longer be reflected in the value of the timber and the land.

FEATURED PROFESSIONAL: Bill Mulligan, Three Rivers Timber, Inc., International Lumber Markets and Ponderosa Pine

Featured Professional: Bill Mulligan, Three Rivers Timber, Inc.

International Lumber Markets and Ponderosa pine

No other specie of domestically processed wood today is influenced by international markets as much as ponderosa pine. Typically, regional sawmills cut four basic products from ponderosa pine; moulding, shop, one inch boards, and dimension lumber. Key to maximizing return to the sawmill is to cut as much high valued product, primarily moulding and shop grades, as can be recovered from a quality log. These selected grades are produced from clear, or nearly clear lumber.

There are several countries that produce significant volumes of lumber that are imported into the United States, and compete against our local ponderosa pine products. Most notably, Radiata pine from Chile and New Zealand produce high percentages of clear grades from fast growing, pruned forest plantations. Also, Mexican pine from mature old growth forests produce relatively high percentages of clear cuts. The influx of wood from these countries often keeps prices of high valued products depressed as the supply and demand system balances.

Levels of import are often driven by unusual factors. Weather in Mexico, insect damage in Chile, and crashing Asian markets for New Zealand Radiata pine will create constantly changing supply relationships. Domestic operators must understand what is happening in the international market to set local log prices at levels that will allow for adequate profit.

As substitute products, particularly from processed wood fiber, continue to develop, it will become even more challenging for local mill operations to establish ponderosa pine log prices. It will be particularly risky to be aggressive on long term raw material pricing.

While all this is difficult enough for experienced mill operators to comprehend, it is virtually impossible to explain to irate timber owners being offered $450/mbf for the same log they sold four years ago for $650/mbf. However, it is further indication of our need to understand expanding markets and a shrinking world.

Planning Your Timber Harvest for 1998

By: Vincent Corrao, Northwest Management, Inc.

When considering a timber harvest on your timberland property, one of the first things to investigate is the log market. Prices for 1998 are expected to be similar to those received in 1997. Pulp prices rose the last quarter of 1997 and have remained steady. Generally, the outlook is good with no significant increases expected. Additional points to consider when preparing a timber harvest are:

  • How much timber should be harvested and what do you want the property to look like after harvest?
  • What type of harvesting system and equipment should be used to achieve the desired results while minimizing cost?
  • What are logs of this quality, size and specie worth? How can the logs be marketed to achieve the maximum value?
  • How much revenue will be generated from the harvest and how will that affect your financial/tax situation?
  • How will the slash abatement be managed and who will be responsible for slash cleanup and burning?

A timber harvest is conducted generally only once or twice on a parcel for any one landowner. It is crucial to properly plan, schedule and manage the timber harvest to maximize revenues while meeting management goals. A quality job will provide a forest you and your family can enjoy and be proud of. In planning your timber sale, contact Northwest Management, Inc. to help you with making these important decisions.