i2— Lancaster Fanning, Saturday, June 7,1980 BY SHEILA MILLER LITITZ The corporation an estate planning tool scarcely used by family farms—is the subject of this week’s final article in the series on estate planning. Until recently, there were few fanners in the Com monwealth who used this tool in handling their estates, primarily because of the tax implications of in corporation. But this may all change in the near future if House Bill 1606 is passed by the Senate and signed by the Governor. Introduced this year by Lancaster County’s Noah Wenger, this bill would exempt the family farm from paying the annual one percent tar on the assets of the corporation. This would be an incentive to fanners because now they would not be saddled with the across-the-board tax if their income didn’t justify it. To understand just what an impact the tool of in corporation can have on handling an estate, let’s take a look at just what in corporation means. According to Penn State’s circular 552, Incorporate Your Farm?, a corporation ’ is “a ‘person’ created by the state of Pennsylvania. It has most of the legal rights and duties of any other person and can own property, sue or be sued, borrow money, and perform other acts of business.” They point out that the people who own the cor poration are completely separate and apart from the ‘person’ of the corporation. To understand this a little better, let’s look at the example of a farm couple we’ll call Mr. and Mrs. Smith. If You Need Pipe For Agricultural Uses... CONCRETE PIPE CAN SAVE YOU MONEY! Ask For Monroe Stoltzfus at; t) precast r enterprises, inc. Old Route 22, Box N, Bethel, Pa. 19507 | Towi Phone 717-933-4101 I Zip Incorporation, the little used tool '* a The Smiths decided to incorporate their farm several years ago. And, after many years of service, their old manure spreader was about shot When the Smiths, acting as agents of the corporation went out and bought a new manure spreader, they were not individually responsible for paying for the new piece of equipment—the cor poration was responsible. Jesse Cooper, a form management specialist from Penn State, points out a corporation is owned by the stockholders, which can range in number from one to many. In a farm situation, these stockholders are generally the family members, but they may include other people who have an in vestment in the business. Stockholders own shares, or stocks, in the corporation, and at least once a year they meet to elect their board of directors. The directors usually are the business managers, although they may employ a general manager. The corporation then hires employees-to help see the business gets carried out. When looking at a family farm, this chain of command from directors to stockholders to employees is usually the family members. Do The Job For About Vz The Cost Of PVC In Almost All Cases. 6” Thru 12” Concrete Bell & Spigot Pipe In 4 Ft. Lengths Can Be Used For; • Manure Lagoon Systems • Irrigation & Drainage Ditches • Under Driveways • Underground Storm Sewers ★ ALSO GALVANIZED DRAINAGE PIPE AVAILABLE IN 20 FT. LENGTHS. For More information on Concrete Pipe, Send This Coupon To: Pre-Cast Enterprises, Inc. Box N, Bethel, Pa. 19507 } Address Even though an in corporated farm is a closely knit business, Penn State warns that some of the legal formalities must be followed or the courts could decide the incorporation was merely a scheme to defraud the government and could refuse to recognize it. Incorporation gives the farm family the means of making money through paid wages, dividends, principal payments, lease payments, retirement plans, and the sale of stock, Cooper said. Other reasons for in corporating the farm, Cooper said, include Ifee factor of limited liability. Unlike a partnership, a stockholder in a corporation is not liable for the debts of the corporation. No creditor of an incorporated farm can seek payments from the farm’s individual stockholders. What happens if a cor poration goes bankrupt? The stockholders lose the money, time, and effort they’ve invested in the business nothing more unless the stockholder has signed papers obligating personal assets. Cooper pointed out that although most corporations borrow money, in a farm situation, most commercial lenders consider an in corporated farm loan as a loan to a sole proprietor. He said that is because most farms don’t sell bonds or stocks. Another reason for in corporating, Cooper said, is the easy transfer of property between individuals. Shares in a farm can be given away or sold. When settling an estate of one of the corporation’s stockholders, the shares Phone in estate planning State. owned by the decedent are planning tool is that usually transferred and the cor- , a farm ousiness cannot pay poration continues. Whereas large dividends to its in a partnership, on the stockholders. Therefore, if death of one of the partners, parents leave shares of stock the agreement dissolves. to a child when settling an One drawback in using incorporation as an estate (Turn to Page B 4) The best in fun at the 26th annual KEMPTON COUNTRY FAIR Friday to Sunday June 20 - 21 > 22 TRACTOR PULLING CONTEST Friday, 6:30 • Moderate and Super Stock Class B Pull Saturday, 1 to 4 p.m. • Farm Tractor Class (Lehigh and Berks Co only) 6:30 • Farm Sanctioned Class plus. .. 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Significant historical Pennsylvania newspapers