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.