Green Horizons

As you browse through the pages of your local plat book, you will surely notice a variety of ownership types - individuals, joint ownership, corporations, partnerships, limited liability companies, even trusts. Why is this? What are the pros and cons of each? Who owns your land? Who should own your land?... Let’s take a closer look at some of the basic ownership forms and how they differ.

Most of the family timberland in Missouri is owned either individually or in joint names (typically between spouses). The reason for this is simplicity - it is easier, and less expensive, to title property in our names. It mirrors how we may own most of our other property (i.e. autos, furniture, homes). The problem with this is that farms and timberland are different than most of our other stuff. They can generate taxable income and taxable gains, activities conducted on the property can create significant liability (i.e. farming, hunting, timber harvesting, etc.), and these properties are often "heirloom assets" to our families (meaning they have value beyond just the monetary worth). Simply owning these properties in our names (singly or jointly), may not take advantage of the benefits associated with having a "business entity" own the property. The potential advantages of business entity ownership can be categorized as follows:

• Tax advantages associated with income and/or gains
• Limited liability for certain risks
• An entity "life" beyond the length of our human lives
• Creative division of ownership, income and expenses

The main types of business entities are partnerships, corporations, "sub-chapter" S-corporations, and limited liabilities companies. Each type provides different advantages (and drawbacks) to the family. The attached grid summarizes the key features of each entity type.

Each family situation is different, so there is no single "best answer" for everyone. Close work with your succession planning team members (attorney, accountant and financial advisor) is essential to design the best possible solution. Often, there may be more than one ownership structure that could potentially fit. Weighing the tradeoffs between them, and selecting the best business entity, requires a team approach. It also requires a sharp focus on your specific family goals throughout the process.

In past Green Horizons issues, we have discussed the benefits of using trusts for timberland succession planning. Trusts, especially revocable living trusts, may have a place in your planning, as well. Often, the best solution for families may be to have a revocable living trust own the business entity interests (i.e. the Scorporation shares or limited liability company membership interests). While more complex, this layered structure often provides the highest level of tax benefits, liability management and succession planning flexibility. (Sounds like a topic for another article...) In the meantime, talk to your advisors about your situation and whether your present ownership structure is the most appropriate for your situation.

David Watson is a financial advisor specializing in working with rural landowners, sportsmen and conservationminded families. D.A. Watson & Company, 17263 Wild Horse Creek Rd., Suite 202, Chesterfield, MO 63005, 636.230.3900, 888.230.3999, www.dawatsonco.com

All investing involves risk including the potential loss of principal. Specifically, investing in timberland is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable property and timber valuations and supplies. The market for timberland is widely unregulated and concentrated investing may lead to higher price volatility and there may not be a secondary market available for this product.

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. This information is not intended to be a substitute for specific individual tax, legal or investment planning advice. Please consult a qualified professional for legal advice/services.

Securities offered through Royal Alliance Associates, Inc., Member FINRA & SIPC. Royal Alliance Associates, Inc. does not offer tax or legal services.

Advisory Services offered through Pines Wealth Management, LLC, a Registered Investment Advisor, not affiliated with Royal Alliance Associates, Inc.

D.A. Watson & Company is not affiliated with Royal Alliance Associates, Inc., nor registered as a broker-dealer or investment advisor.