Mette, Evans & Woodside

Six Mette, Evans & Woodside Attorneys Named “Best Lawyers”

Mett, Evans & Woodside - Recognized as Best Lawyers 2020

Attorneys pictured left to right: Howell C. Mette, Timothy A. Hoy, James A. Ulsh, Thomas A. Archer, Gary J. Heim, Mark S. Silver

Six Mette, Evans & Woodside attorneys have been selected by their peers for inclusion in The Best Lawyers® 2020. Attorneys Howell C. Mette, Timothy A. Hoy and James A. Ulsh were recognized again this year.  Attorneys Thomas A. Archer, Gary J. Heim and Mark S. Silver were recognized for the first time.

Best Lawyers is the oldest and one of the most respected peer review publications in the legal profession. The Best Lawyers designation is based on an exhaustive peer-review survey in which more than ninety thousand leading attorneys cast over ten million votes on the legal abilities of other lawyers in their specialties.

Selected in the tax law category, Howell C. Mette, the founding shareholder of Mette, Evans & Woodside, has long been recognized for his work in trusts and estate planning. Mr. Mette was first named Best Lawyer in 1987.  He is also AV rated by Martindale-Hubbell and has earned the recognition of Super Lawyer.

Timothy A. Hoy, current President of Mette, Evans & Woodside, was recognized for his work in banking and finance law. Mr. Hoy focuses his law practice on assisting businesses and financial institutions. In addition, Mr. Hoy has taught Payment Systems at Pennsylvania State University – Dickinson Law and at Widener Law Harrisburg.

James A. Ulsh, a long-time shareholder, was recognized for business organization law. Mr. Ulsh concentrates his law practice on banking, commercial law, healthcare issues, employee benefits programs and estate planning and administration. He has previously been named a Super Lawyer and is also AV rated by Martindale-Hubbell.

Thomas A. Archer, Chair of the firm’s Litigation Practice Group, who was selected for personal injury law, has more than twenty-five years’ experience in civil litigation. In his practice, he represents injured people and their families throughout Pennsylvania and New Jersey. He regularly serves as an adjunct faculty member in Widener University’s Intensive Trial Advocacy Program.

Named “Best Lawyer” in trusts and estates, the focus of Gary J. Heim’s practice during his legal career of over 35 years has been agricultural law. He provides a broad range of legal services to Pennsylvania’s farm and agri-business community and has counseled thousands of the state’s family farms with the transition of those businesses to the next generation through his statewide practice.

Mark S. Silver, who has been recognized in real estate law, serves as Special Counsel to Mette, Evans & Woodside. Mark concentrates his practice in eminent domain. In addition his work in eminent domain, Mark’s legal practice encompasses other areas of real estate law including: land use, subdivision and zoning, and transactions.

Mette, Evans & Woodside has a long-standing tradition of providing comprehensive legal representation in Litigation, Estates and Trusts, Business and Real Estate. Founded in 1969, the firm provides clients throughout Pennsylvania with sound legal counsel for all facets of their professional and personal life.

Life Insurance Policy

Will Your Whole Life Insurance Expire Before You Do?

By: Gary J. Heim, Esq.

Life Insurance PolicySome farmers have purchased whole life insurance as an integral part of their estate/farm succession plan.  Frequently, the children who are not actively involved in the family farm business (non-farming children) are the intended recipients of those insurance proceeds.  In the parents’ quest to be fair and equitable among the children, the insurance proceeds often pass to the non-farming children to eliminate or reduce the payments that the farming children would otherwise make for the family farm assets they are receiving.  Some of our clients, who have purchased whole life insurance as part of their farm succession plan, however, are discovering, unexpectedly, that their insurance may lapse before their deaths, whether automatically or due to unaffordable premium increases.  If the policy lapses, there are fewer assets to distribute at their deaths.  In the most extreme cases, there are no assets to distribute to the non-farming children.

People expect term insurance (no cash value) to lapse at a certain age.  On the other hand, whole life insurance (any insurance with a cash value such as universal, variable or traditional whole life) is commonly expected to continue until the insured dies… regardless of the age.  But this is a common misconception.

Just as longer life expectancies and reduced investment and interest returns have wreaked havoc in the pension world, these same factors have adversely impacted some (not all) whole life policies.  The most vulnerable policies are those purchased before 2008 when higher investment and interest returns were the norm.

An estate/farm succession plan should be reviewed every five (5) years to evaluate changes in farm/business circumstances, tax laws, Medicaid qualification and assets/debts.  Part of that review should include an insurance company-generated report that projects when the policy will expire under current premium and cash value levels.  The report, commonly referred to as an “in-force illustration,” can be requested from the agent or directly from the issuing company.

If you learn from the report that your policy is projected to expire at a certain age, you can determine whether changes to your estate/farm succession plan are necessary, so all of your children are treated fairly.  The attorneys at Mette, Evans & Woodside are available to counsel and assist you with updates to your estate/farm succession plan, including the interplay of the life insurance component of that plan.

Like-Kind Exchange

How Does a Like-Kind Exchange Work?

By: Gary J. Heim, Esq.

Most farmers and land owners have heard of a like-kind exchange, which goes by several other names, including a 1031 exchange or a tax-free exchange. The primary purpose of an exchange is to reduce the federal income taxes resulting from the sale of real estate.

Although an exchange will not be appropriate in all situations, it should be considered whenever business, farm or investment real estate is being sold.  Projecting the income taxes payable from the sale if an exchange is not used is the starting point.  To qualify for the tax savings, not only must the real estate being sold (relinquished property) be used for farm, business or investment purposes, but also the real estate that is being purchased (replacement property) must be held for farm, business or investment purposes.  It is not an all or nothing requirement, however.  The seller can keep some of the cash from the sale and only invest a portion of the sale proceeds in other real estate, but the income tax savings will only apply to the portion of the proceeds reinvested in qualified real estate.

Farm real estate can be exchanged for an apartment or other commercial property; the replacement property does not have to be a farm.  The like-kind requirement is satisfied as long as real estate is exchanged for real estate (used for farm, business or investment purposes).

Some of the more common situations where our office has assisted PFB members with exchanges include: (1) the sale of agricultural conservation easements; (2) the relocation of a farm operation from one place to another; (3) the sale of a portion of the farm for warehousing or other development purposes; (4) rearranging the ownership of jointly-owned property among siblings or others; and (5) the condemnation of property for highway, school, pipeline or other purposes (there are more lenient IRS rules for reinvestment of condemnation proceeds).

The like-kind exchange process usually involves four advisors or services, including: (1) a tax preparer/advisor; (2) an attorney to prepare the agreements of sale and related documents; (3) a title insurance company to insure title to the property; and (4) a qualified intermediary (QI).  The QI is used to satisfy the IRS condition that the seller cannot actually receive the sale proceeds.  Instead, the QI receives and holds those proceeds until it is directed to release the money to purchase a replacement property.

The IRS has rigid deadlines that cannot be extended for hardship or other reasons in the like-kind exchange process.  For example, replacement properties need to be identified within 45 days of the closing for the relinquished property.  Similarly, the closing for the replacement property needs to take place within 180 days of the closing for the relinquished property.

The attorneys at Mette, Evans & Woodside have guided and assisted many PFB members through the like-kind exchange process and can assist you in the evaluation and implementation of a like-kind exchange.

Mette, Evans & Woodside

Prenuptial and Postnuptial Agreements in Farm Succession Planning

By: Gary J. Heim, Esq.

As part of the succession planning process, most farm owners anticipate the challenge of balancing the older (transferring) and the younger (receiving) generations’ financial needs. And, they know that a difficult decision about the fair distribution of assets among the on-farm and the off-farm children is inevitable. However, equally important in the succession planning process, discussing prenuptial and postnuptial agreements (“marital agreements”) comes as a surprise or is uncomfortable for many from a family or moral perspective.

Marital agreements are used to establish the rights of a married couple in the event of a divorce, and sometimes death. By statute, Pennsylvania provides what the financial rights of spouses are in the event of divorce and also in the event of death. Just as a person has the right to alter the will that Pennsylvania has written for each of its residents (intestacy law), marital agreements can be used to alter the terms that otherwise apply in the event of a divorce of a married couple.

The financial effect of divorce in the farm community is severe due to the high value of farm assets in comparison with the relatively low net farm income. The forced liquidation or distribution of some or all of the family farm assets due to divorce is especially troubling when those family farm assets have been accumulated and preserved over multiple generations at great sacrifice, both in terms of the sweat equity invested and the relatively modest income paid to those farm family members. Further, the involvement of multiple family units in the family farm business means a single divorce can have wide-reaching effects beyond the individual family unit.

While most people think of the younger generation in the farm family business when the topic of marital agreements arises, they also need to be considered by the older generation, particularly with a remarriage following the death of a prior spouse. In one instance with which we were involved, for example, an on-farm child, who was to inherit the farm as a gift from his father, had to pay his step-mother over 30% of the value of the farm. This result could have been avoided through a properly-drafted prenuptial agreement.

It is the farm family members, not the attorneys or other advisors, who need to decide whether marital agreements will be used. However, if you decide that marital agreements are needed in your situation, consider some of the following general rules:

1. A comprehensive disclosure of financial information is required.

2. Each of the two parties to the agreement should be represented by separate attorneys.

3. Without a marital agreement, the income from and appreciation in value of gifted/inherited assets and of pre-marital assets become marital property, subject to equitable distribution in a divorce, even if the assets are only titled in one spouse’s name.

Pennsylvania Inheritance Tax – Agriculture/Family Business Exemptions

By: Gary J. Heim, Esq.

PA Inheritance Tax

As Benjamin Franklin famously declared, the only things certain in life are death and taxes…but the ag/family business exemptions enacted in recent years are reducing the Pennsylvania inheritance taxes for many farm families. With proper planning and action, both before death and even after death, these inheritance tax savings can be substantial.

Practically every farm family has, historically, paid Pennsylvania inheritance taxes at some point in time. Unlike the federal estate tax with a current exclusion of over $5 million of assets, Pennsylvania’s death taxes are payable on the first dollar of non-exempt assets. With a tax rate of 4.5% for transfers to direct family members, $45,000.00 of inheritance tax is payable for a farm family with a $1,000,000.00 estate, but the ag/family business exemptions can eliminate all of these taxes.

There are three separate ag/family business exemptions that were enacted in the past five years, which can be described as follows:

1. An ag exemption for immediate family members (lineal descendants and siblings);

2. An ag exemption for extended family members (as distant as second cousins); and

3. A family business exemption that includes ag businesses, but also extends to non-ag businesses.

Each of these exemptions has different qualifications and requirements, which is why an in-depth knowledge of the exemptions by your attorney is essential for proper planning. For example, two of the three exemptions include a seven-year look-back condition, similar to the Clean and Green law for real estate tax purposes. This condition, which you want to try to avoid, is often referred to as a clawback feature that requires the inheritance tax savings to be repaid if certain actions or events occur.

The immediate family ag exemption does not have a clawback provision so there is no need to account to the Department of Revenue for what is done with the exempt assets after a person’s death. It is the most narrow of the ag/family business exemptions in terms of the eligible beneficiaries, the type of farm assets exempted and the manner in which the farm assets need to be owned by the deceased person at death.

The family business exemption, available for both ag and non-ag businesses, is the broadest in scope, but even it has limitations, such as the requirement that the net book value of the family business be less than $5 million. However, there are pre-death planning techniques that can expand the family business value covered by this exemption even though the collective fair market value of the family business may exceed $5 million.

If you are in the planning stages for your estate or farm succession, these ag/family business exemptions are one of many factors that need to be considered in the development and documentation of a complete estate and succession plan. Similarly, if a family member of yours has died within the past four to five years, and the estate attorney or other advisers did not utilize these ag/family business exemptions to reduce the Pennsylvania inheritance taxes, there may still be an opportunity to do that because a refund request can be made for inheritance taxes for a period of up to three years from the date of final payment or determination of tax.

Mette, Evans & Woodside attorneys are knowledgeable about these ag/family business exemptions to Pennsylvania’s inheritance tax, as well as the many other tax and non-tax factors to be considered for your estate and succession plan and to settle the estate of a family member with farm or other family business assets. They are able to assist you with these and other legal matters.

Termination of Crop Lease by the Landowner

By: Gary J. Heim, Esquire

Termination of Crop Lease By the Landowner

The majority of crop leases are verbal. Even those that start in written form often are not rewritten after the initial lease term expires. Over the years, the original written lease terms typically are modified through telephone calls or face-to-face discussion or custom and practice between the landowner and the tenant. This informality works in most instances and that is why so many crop lease arrangements are verbal or the original lease agreement has not been updated for a decade or longer. However, when the landowner unexpectedly terminates the lease, the loose legal terms can make the separation more challenging…and potentially expensive.

The landowner’s decision to terminate the lease is often precipitated by one of the following: (1) rent payments are late; (2) the property is being transferred; (3) the original landowner dies; (4) competing crop farmers offer higher rent payments; (5) the relationship between the landowner and the tenant grows distant or cold; or (6) a combination of these factors.

So what can the tenant crop farmer do when notified of the termination? First, try any number of common sense business efforts to change the mind of the landowner. If those are not successful, consider the losses that will result; if substantial, you may need to consider your legal options.

Generally, leases in Pennsylvania, even verbal ones, require advance written notice of termination. Most crop leases, particularly verbal ones, have a term of one year, which require advance written termination notice of at least 15 days. The notice has to be delivered in-person or by posting it on the leased property; mailing a notice, even by certified or registered mail, is not legally effective. Further, the notice is not effective until the end of the yearly term. As an example, if the crop lease term is January 1 to December 31 and the written notice is given after December 15 or if it is not hand-delivered or posted on the property by that date (even if mailed and received by Thanksgiving) the crop lease would continue for the entire following calendar year.

Another possible legal right of the tenant involves way-going crops, such as barley, rye or wheat, that are planted in the fall, but not harvested until the next summer. Even if a valid lease termination notice is given, the tenant crop farmer generally has the right to enter the leased property the following year to care for and to eventually harvest those crops without any additional rent payment being made to the landowner.

So, if you are the tenant farmer…you may have legal alternatives when a lease is unexpectedly terminated. And, if you are the landowner, be sure to follow the exact requirements for giving notice of a lease termination.

Mette, Evans & Woodside attorneys can evaluate your crop lease arrangement and advise you, whether the landowner or the tenant, how to deal with the termination of the lease.