Financial Cultivation: Nurturing Your Farm's Future with Penny Wade
Unlock the secrets of financial success in the farming industry with the astute Mrs. Penny Wade of Wade Farm Financial Services. In our latest engaging conversation, Penny recounts her compelling tale of transforming a family legacy into a booming enterprise, offering indispensable wisdom on the significance of financial diligence for agricultural success. She introduces a trio of offerings that are essential for any farmer's fiscal toolkit: meticulous tax preparation, in-depth financial reporting, and forward-thinking strategic planning services. Her insights on estate and succession planning are particularly eye-opening, revealing a roadmap for navigating the complexities of tax laws and asset management.
Picture this: A world where financial records work seamlessly to support loan applications and tax strategies unfold with the precision of a well-oiled machine. That's the reality Penny Wade helps her clients achieve through Wade Farm Financial Services. The episode peels back the layers on how her strategic decision in 2019 accelerated growth and reinforced client relationships. It's a testimony to the synergy between client cooperation and efficient financial operations, and a testament to the importance of long-term partnerships. As you listen, you'll learn how proactive tax planning meetings between Thanksgiving and Christmas can prevent those end-of-year tax blues and position farmers for a prosperous new year.
Navigating the intricacies of estate tax planning? Consider this episode your compass. Penny elaborates on the potential pitfalls and strategic maneuvers in this often-daunting territory, from understanding the impact of high-value land and equipment to leveraging irrevocable trusts and the concept of a stepped-up basis. For those inheriting wealth, these insights are invaluable in minimizing future tax burdens. Whether you're a seasoned farmer or just inheriting your first piece of farmland, the final chapter of our discussion with Penny Wade equips you with the critical knowledge to confidently approach estate planning and prepare for that all-important meeting with a tax professional.
[00:00:08.250] - Chris Griffin
Welcome to Back to Your Roots, a podcast that provides insight into all things farming, financing and farm life guiding you Back to Your Roots. Thanks for joining us again on Back to Your Roots. I'm your host, Chris Griffin.
[00:00:20.760] - Jordan Turnage
Hey, guys, I'm Jordan Turnage. Thanks for always for coming back and listening to us here on Back to Your Roots podcast guests. Today, we want to welcome in Mrs. Penny Wade. She works and owns Wade Farm Financial Services. Just want to thank you so much for coming in, Mrs. Penny.
[00:00:32.660] - Penny Wade
Oh, you're very welcome. Glad to be here.
[00:00:34.240] - Chris Griffin
We're real glad to have you.
[00:00:35.470] - Chris Griffin
Record keeping tax returns.
[00:00:38.290] - Penny Wade
Very exciting topic today.
[00:00:40.490] - Chris Griffin
Very vital topic.
[00:00:41.940] - Penny Wade
[00:00:42.990] - Jordan Turnage
Well, Chris and I get a little taste of know. As far as know, Ms. Teddy, she works in our Kevil office about two to three days out of the week. I'm sure next going into next year, we're definitely going to see a lot more of her. So we kind of get a little taste of what it's like to work with you, but just going to kind of go off of starting from the beginning with you. Mrs. Penny, we know that your father started Wade farm financial services, and then you followed in his footsteps. So just kind of give the listeners out there how long you've been with the business and the background and how you got to where we are today.
[00:01:15.260] - Penny Wade
Okay, very good. So my dad, Ken Wade, actually worked for the old Jackson Purchase PCA in Mayfield, and in 1986 went out on his own and started the bookkeeping service, Wade Farm Financial Services. So I think the Jackson Purchase ACA, we were going through that 80s farm crunch at the time, the good times of the. So they really needed some good record keeping. So dad went out on his own at that. I was a junior in college at the time, and Wade Farm Financial Services actually started in my bedroom at home while I was away from college away at college. I came home for Christmas and I'm like, what's this?
[00:01:51.460] - Chris Griffin
Where's my bedroom?
[00:01:52.520] - Penny Wade
Where's my bedroom? What's going on here?
[00:01:54.530] - Jordan Turnage
He's like, just hand me that file.
[00:01:55.950] - Penny Wade
Yeah. Little did I know that that would be one day what I would do for a living. At the time, I had no idea, but I was studying accounting.
[00:02:04.470] - Jordan Turnage
Where'd you go to school?
[00:02:05.350] - Penny Wade
I went to Murray State.
[00:02:06.470] - Jordan Turnage
[00:02:07.390] - Chris Griffin
[00:02:08.220] - Penny Wade
So even though I was interested in accounting, I really always thought I'd go work for a big eight firm. There were big eight back in the day, top eight firms in the country. And that was my goal.
[00:02:19.280] - Jordan Turnage
Like Goldman Sachs kind of, well, kind of investment firms.
[00:02:22.740] - Penny Wade
Price Waterhouse there's a bunch of. I don't actually know what the big ones are now. There were big eight at the time, so I never really planned on following in my dad's footsteps and knowing really what he did. When you're in your early twenty s, you want to leave home and go do something else.
[00:02:38.050] - Jordan Turnage
Have your own experience.
[00:02:39.160] - Penny Wade
Yeah. And go do those things. But I eventually made my way back to Mayfield after going out and doing some things and came back and I raised a family. So I didn't go back to work until 2003. And I was in my late thirty s at the time and I'd raised my family. My kids were all in school and dad gave me a job. I didn't have much of one. There wasn't too much for me to do. I did a lot of cleaning coffee cups and filing and doing whatever. But I have this insatiable desire to learn things. So it didn't take too much that I just really dug in and started learning the business. It wasn't long after that, maybe five years, that my dad got diagnosed with Parkinson's and so his health started failing and I started picking up more and more. I actually bought Wade farm from him in 2009. So I've been the owner since 2009. He passed away in 2019, but we've grown considerably since then. So when I bought, I think we've tripled in size. And then I sold off 42% in 2019 and now we're back up, tripled in size again.
[00:03:54.590] - Penny Wade
So there has been a desire for the services that we offer.
[00:03:57.900] - Jordan Turnage
Well, I mean, for the quality, not to knock other firms, but for the quality that you guys provide. I could totally understand where those folks and word of mouth and peace of mind for farmers, not just for farmers, for lending on our side as well. Having that peace of mind and having a good quality report to know what we're looking at. Good and clean and precise always helps out.
[00:04:20.850] - Penny Wade
Yeah. Thank you for saying that. That's the kind of comments we like to hear. Yeah, we like to fill that gap in and make sure not only tax. So we really kind of have three areas of main areas of business, one of them being tax, one of them being the financial reports that we send to lenders, and the third being more on planning, like estate planning, succession planning, retirement planning. So those are kind of our three main areas. What you're talking about, what you guys see here, well, you also want an accurate tax return. But you see our financial report.
[00:05:00.510] - Chris Griffin
I went through my first operating renewal season last year and a few of my portfolio customers had your records. I was like, my gosh. I'm like, this is amazing. I'm like, I wish everybody had this.
[00:05:14.170] - Jordan Turnage
It's black and white.
[00:05:14.860] - Chris Griffin
I mean, literally, it makes my job drastically simpler.
[00:05:19.490] - Penny Wade
You have to remember that my dad came out of the Farm Credit System and developed this system really for you. So we think it's even more tailored towards River Valley clients than anybody.
[00:05:35.370] - Chris Griffin
I definitely noticed it because last year, I think I made the comment to somebody. I was like, man. I was like, these records are amazing. I'm like, this is awesome. And they're like, yeah. Whenever we have Wade Farm Financial Services records, we know it's going to be pretty easy approval and pretty easy to do the analysis on it.
[00:05:51.820] - Penny Wade
Music to my ears, that's exactly what we want to hear.
[00:05:55.220] - Jordan Turnage
It's peace of mind when you see that little tractor with the WFFS.
[00:05:58.630] - Chris Griffin
Yeah, no doubt.
[00:05:59.830] - Jordan Turnage
Okay, well, there's not going to be really any deciphering. There's not going to be any second guessing on it.
[00:06:08.090] - Chris Griffin
Makes it a lot easier.
[00:06:09.090] - Penny Wade
I don't think too many people understand the amount of record keeping effort that goes into it behind the scenes to make sure those numbers are accurate. I'm assuming from some experience, because when we take on new clients, we see what they come in with, that the numbers that are on the tax return or numbers that are on their financials, where did they come up with those numbers? Are they accurate? And I'm not saying they're falsified, but are they keeping good enough records to give those?
[00:06:39.520] - Chris Griffin
Is it really telling the full story, I think is the biggest.
[00:06:42.100] - Jordan Turnage
It's a big moving target.
[00:06:44.550] - Jordan Turnage
It changes every day.
[00:06:45.640] - Penny Wade
It is. So we have a bookkeeping staff that's just devoted to that. Shall I get into that and tell you a little bit about that?
[00:06:51.250] - Chris Griffin
[00:06:52.040] - Penny Wade
So let me just tell you a little bit about how we run our business. So we have, in the Mayfield office, we have ten employees, and three of them are just full time bookkeepers. Everybody does a little bookkeeping, even me, but we have three that do it full time. And they are in charge of reconciling bank statements and working with our clients, your customers, on a monthly basis. We don't let things go to the end of the year and try to cram it all in and hope we get it right. We're working with them on a monthly basis to make sure we're getting all income and all expenses recorded correctly. I tell new clients that come to us, you're going to be really aggravated with us the first year because we don't stop asking until we get the answer.
[00:07:36.020] - Chris Griffin
But you would rather catch that early?
[00:07:37.670] - Penny Wade
Absolutely. We do it on a monthly basis because you forget, you don't remember what happened four months ago.
[00:07:44.900] - Chris Griffin
My wife owns a business. I get it. I hear about it all the time at the house.
[00:07:48.250] - Penny Wade
So we're reconciling to everything that we can get our hands on. We reconcile to bank statements, we get loan documentation, every USDA reports, crop insurance reports, 578 from USDA. Everything that you can possibly imagine that we can get our hands on, we get our hands on it and make sure that the records match, that we produce yield numbers, all kinds of things for accuracy, purposes of nothing else, to make sure that we're making sure that we're getting all the income in there that we're supposed to get in there. So that's what my bookkeeping staff, they're well trained. We do have a new person. We had somebody retire this year, and we do have two new bookkeepers. Oh, let me say we have four bookkeepers now, but we had some longevity besides our two new ones after the retirement. And they know what they're doing. We try to train them well and let them do their jobs and do it well. So they have personal relationships. They're each assigned customers, clients we call them to interact with and to make sure that we know exactly what's going on with them.
[00:08:57.390] - Jordan Turnage
Every month I'll get phone calls from my clients and say, hey, I've got to go meet so and so down there at Penny Wade. So can you get me updated on financials and vice versa? I usually get there's at least probably one to five phone calls or emails exchanges per month. I would say, on making sure we've got updated financials or if they've done a loan with us, make sure we get that information to you all to make sure everything's transparent.
[00:09:22.730] - Penny Wade
And thank you for that. We also aggravate lenders just as much as we do our clients. But it's like we want to make sure we're matching what you have. So we want to make sure that if they're borrowing off their line of credit, that we've got it posted correctly, it hasn't gone into income by accident instead of loan, or we want to make sure interest and principal payments are matching up. So we do that on a monthly basis. We're not doing it just at tax times. Yeah.
[00:09:47.800] - Jordan Turnage
Those overlapping information that we need, that goes into us as far as easier modes, as far as getting our three year tax trend analysis that we do as lenders for folks. And so you all having the accuracy of the last three years to us, almost to a penny on a lot of stuff. No pun intended.
[00:10:06.110] - Penny Wade
[00:10:07.490] - Jordan Turnage
And then getting it back. It's a real good relationship that we've definitely built together.
[00:10:15.480] - Penny Wade
I like that word. I think we have a great relationship with you guys, too. So you guys are very cooperative with us. We want to give you everything you need for the benefit of our mutual client. Right. So that we're working together so that they can farm and have the funding to farm as they need to that peace of mind.
[00:10:32.990] - Penny Wade
[00:10:33.550] - Chris Griffin
Well, I think when it comes to farming, you really need to know what that operation looks like and understand it. You go to a regular, accountant or bookkeeper, it just looks different, just like from a lending perspective. And so that's the reason we work well together. When we get your records and we're trying to do an analysis to approve a loan, you guys understand that operation from that perspective, and not just a outside bookkeeping perspective, just like a regular business. There's just some unique qualities to farming and a farming operation that just aren't like any other business at the end of the day.
[00:11:08.920] - Penny Wade
Can I piggyback on that, Chris?
[00:11:11.260] - Chris Griffin
[00:11:11.700] - Penny Wade
Say that we stay in our. Yes, so I've ventured out of my lane a few times and no, no, I just need to stay.
[00:11:20.670] - Chris Griffin
Back to the ag every time.
[00:11:22.330] - Penny Wade
Yes. So I've been approached by other businesses before, and just because I have this kind of insatiable, like, oh, that would be fun to do. I have gone down that road and I've always been sorry. I just eventually let them go and say, you know what? We want to focus on West Kentucky farming, period. And I don't want to be distracted by this or by that. Now, that's not to say that some of our farming clients don't have other business diversified. They might have a trucking business or something, construction on construction or something. And we will loop those things in. Of course, we're not going to say you can't bring us that piece of the puzzle, but we don't do anything but farming now. Yeah, unless I'm having a particular day where I'm feeling generous, and then I'm always sorry. Why did I do that?
[00:12:12.170] - Chris Griffin
[00:12:12.490] - Penny Wade
Let's stick to what we know. Stay in our lane.
[00:12:15.730] - Chris Griffin
Do one thing and do it really well.
[00:12:17.210] - Penny Wade
That's our goal. Yes, absolutely.
[00:12:18.830] - Chris Griffin
Well, and kind of piggybacking off that a little bit. I know you said you've grown tremendously and tripled in size, so roughly just kind of ballpark. How many farm operations do you currently have that use you guys and on a regular basis?
[00:12:34.810] - Penny Wade
So let me first clarify the three Wade Farm offices, because I'm going to loop them all together. So I mentioned briefly a few minutes ago that I sold some of my 42% of my business back in 2019 to a key employee, Jarrod Burgess. So he runs two of our offices. He's excellent.
[00:12:55.350] - Jordan Turnage
Former River Valley.
[00:12:56.500] - Penny Wade
Former River Valley employee. I did it for my own succession planning purposes, had nothing to do other than I'm trying to think about how I'm going to pass on the business to people behind me. But he has a number of these. He's what we call a sister business. He still operates under the Wade farm name and all of our products, but he does own the Clinton and the Kevil office.
[00:13:20.540] - Chris Griffin
[00:13:21.090] - Penny Wade
Which at the time of the sale amounted to 42% of Wade Farm, and I kept 58. We then have grown back up. I think both of us have. I've grown back up to the full 100% before I sold. And I know that he has had some growth also. But we serve about 400 clients together, 400 farmers in Western Kentucky, maybe 20 of those in Northwest Tennessee.
[00:13:43.680] - Chris Griffin
[00:13:44.120] - Penny Wade
Primarily row crop farmers, but tobacco farmers. We have poultry farmers, we have hog farmers, we have livestock farmers.
[00:13:50.210] - Chris Griffin
Now, your main officer, main goal.
[00:13:52.180] - Penny Wade
[00:13:52.560] - Chris Griffin
Now, your main office is in Mayfield.
[00:13:54.080] - Penny Wade
Yes. The office that I tend to is in Mayfield. That's the main office. That's where my dad's business was and where I am also. Yes.
[00:14:01.950] - Jordan Turnage
So do you see with those farmers? I know it's kind of a redundant question on this, but do you feel like farmers see a big difference once they swap over from their old accounting styles over into this? Like we said, I think it's like turn on a light switch for a lot of folks.
[00:14:19.690] - Penny Wade
Yes. They don't leave. I say that as modestly as I can, but we think we provide a good service. We want to provide a good service, and if we don't provide a good service, we want to know about it, so we could remedy that. Now, let me say this first, that sometimes not everybody's a good fit with us. This is a partner ship. You're coming into partnership with us to provide good records so that we provide a really good tax return and really good financials to your lenders. We have to have your cooperation. I'm talking about our clients here. You have to cooperate with us. Okay.
[00:14:51.500] - Jordan Turnage
Yeah its a you help you we help you.
[00:14:52.160] - Chris Griffin
I get that because just like with us, when we're trying to lend money or help one of our borrowers or build a new. There are certain things that if they will cooperate with us, it moves that process along quicker and expedites things. And I'm sure for you guys, too. I mean, it's only as good as the input. So if they're giving you bad records or bad numbers, not much that you can really do from that.
[00:15:17.270] - Penny Wade
Right. And sometimes we can tell we know something is amiss. Like I said, we're producing yields. We're looking at your 578, and that's new. Nobody's ever asked them for that before, like if they came from somewhere else. So we have a lot of new clients the first year. Why are you asking me that? And why do you need to meet with me?
[00:15:34.840] - Chris Griffin
Yeah, why do you need a personal relationship? Why do you need to meet with me?
[00:15:38.700] - Penny Wade
Then they get their first tax estimate and we do a really good tax planning, or they get their first financial to you and their loan process goes through smoothly, and then all of a sudden they're our customer for life. Yeah, that's awesome. I can see it in their eyes sometimes the first year they're a little bit of aggravation, but I'm like, I get it. Hang on. You're going to see the benefit.
[00:16:02.010] - Jordan Turnage
It's growing pains.
[00:16:03.000] - Penny Wade
It is a little bit of growing pains. And now you're going to understand what we need and there won't be so many calls back and forth on that transition. Right. You're just going to go ahead and provide it. Yeah.
[00:16:12.920] - Chris Griffin
So obviously a busy time of the year coming up. I know it's probably busy all year long, but it's really going to hit it hard probably after the first of the year. What are some things, I know you have that personal relationship with a lot of your customers, but just some advice that you give the viewers if they're turning records into you or whatever. What are some things that are really important for you guys to get in a timely manner to make sure they get that tax return done in the right amount of time?
[00:16:41.820] - Penny Wade
Okay, so let me address that. First, let me say that our practice is very different from most other accounting practices. Our busiest time of the year is really between Thanksgiving and Christmas.
[00:16:50.360] - Chris Griffin
[00:16:50.930] - Penny Wade
Because we sit with every client. We really start back in October, but we get our larger clients between, we wait till they get out of the field most of the time before we have a meeting with them. And so our larger farmers are usually between Thanksgiving and Christmas. But that's our busiest time of the year. The most stressful for me and the most challenging as far as scheduling and things go. But we meet with every client to develop a tax plan.
[00:17:17.770] - Chris Griffin
[00:17:18.220] - Penny Wade
So we sit with them. We go over their books from all the way through, like the day before. They walk in, we've got their records, and then we predict for the rest of the year what's going to happen. And we make recommendations on how much of their crop they need to bring in, how much of that they need to hold until next year, if they need to buy equipment, if they need to pre buy. Are there some entity selections that we could make? We can transform an LLC or do an s corp or a partnership or any type of tax related planning we're doing in the fall. And that is our main meeting, setting us up for tax.
[00:17:56.680] - Chris Griffin
So it's almost like you're getting ahead.
[00:17:58.180] - Penny Wade
We are, a little bit.
[00:17:59.210] - Penny Wade
Well, we want to do it before December 31st, because after December 31st is too late. Now, there are a few things that we can manipulate after December 31st to change a tax situation, like how we depreciate assets. There's lots of choices, and so we can change our mind after December 31 on that. But we go into the new year with a plan. So if that plan changes, we had asked them to sell $500,000 worth of grain, and they didn't get it sold. Maybe we can back off at depreciation to close in that gap and get them in a good tax position. So we do a number of things. We watch, like the amount of crop going from one year to the next. How much pre buys are we setting ourselves up for? A bad year next year? From a tax perspective, what type of equipment needs you need, what you don't need, don't buy, and just trying to get them in a really good position to pay tax. We like to do tax planning should be not so volatile. It shouldn't be all over the place. Like, this year, I have no tax. Next year I've got 50 grand.
[00:19:11.450] - Penny Wade
Next year I got 30 and back down to ten. We try to keep it evened out. We also want to make sure that you're not getting taxed at a higher rate than necessary. So we want to keep you in the lowest tax rate that we possibly can. So all of that's done before Christmas. I'm finishing up Thursday. Okay. So my last appointment.
[00:19:32.010] - Chris Griffin
Much needed break?
[00:19:33.140] - Penny Wade
Yes. I take a week break, and then we'll start in on January. Working on your financials. We'll start the first week of January, working on the year ends. But after that, to answer your question specifically, is really by this time we should have everything except for the last month's bookkeeping. That's going to come off of a bank statement and the actual tax documents that they're going to receive in January.
[00:19:56.790] - Chris Griffin
I got you.
[00:19:57.500] - Penny Wade
Once those things come in, then we're matching them to the records. So if they get a USDA 1099, then we're going to make sure it matches our records and we're going to start tracking down if it doesn't. We've been watching as it's been deposited in the bank and if some reason we get a tax doc that says something different, then we're reconciling that. We're figuring it out.
[00:20:17.400] - Chris Griffin
[00:20:17.740] - Penny Wade
We're not going to just go put in that other number because you know what? Sometimes the tax documents come in are wrong. So we want to make sure. We want to find out who is right on that.
[00:20:27.540] - Chris Griffin
[00:20:28.020] - Penny Wade
So hopefully by the end of the year, we've got a good tax. Nobody really misses their tax planning meeting with me. As a matter of fact, some people.
[00:20:35.790] - Chris Griffin
Want the look in your eyes. I wish the viewers could see your face because the look in your eye was like, I'll find you, and we're going to have this meeting. It was kind of the look. I just got.
[00:20:47.140] - Penny Wade
Well, I don't have to do that much pressuring on this one because I think this is the meeting that we've built our business off of that. I think they see the most bang for their buck on this one because we can really help with tax planning. It doesn't take too much strategy to move that tax number to what it should be. And so we don't want to tax you. You've got a certain amount of grain that you've sold, you are going to pay tax on it. But are you going to pay tax on it at 37% or are you going to pay a tax on it at 22%? We want to get you into the lower tax bracket if we can, that kind of stuff. So not too many people miss this one most of the time, like I said, they want two and it's like, okay, we'll do what we can.
[00:21:30.960] - Jordan Turnage
Thats to their benefit.
[00:21:31.830] - Penny Wade
Yeah, it is. But we should have almost all of that. But if they have not, for some reason, we have unanswered questions. We need them to get them resolved by now. So if something goes through their checkbook, for example, we don't know what it is. We don't post it just anywhere. We stick it in an account until we figure it out. So we're trying to wrap up loose ends. By this point, we're trying to get all their equipment contracts. Most of our clients, when they buy equipment, they just have the contract sent directly to us from the dealer. So we get all the contracts. I have a staff person. This is probably unique to any other accounting firm who his sole job is to deal with trades and purchases and sales of equipment for our clients. I got you because it's a big deal and it's a big part of tax. And so we're doing that throughout the year. We're getting contracts and we're making decisions on how we want to tax or deduct those things. Did I answer your question?
[00:22:33.170] - Chris Griffin
I thought it was a great answer because as a spouse of a business owner, I mean, obviously not nag, but she owns a business. Hearing you say anybody in your position, I think that does a good job. They're reaching out to that client multiple times during the year because you want to have that, hey, let's look at the first quarter, let's look at mid year, let's look at in that last quarter, because that's when you can make decisions and you can change the direction for the rest of your business for that year.
[00:23:01.900] - Penny Wade
[00:23:02.330] - Chris Griffin
And sometimes it's too late. I mean, if it gets too late in the year. And so sometimes you can catch those trends early, you can catch those pitfalls early. And so I was just sitting there thinking. I was like, yeah, I know my wife has met with her accountant a few times. I appreciate that about you. And I know your clients probably appreciate that, too, that you're proactive like that.
[00:23:22.120] - Penny Wade
We are. So they're going to interact with our bookkeeping staff on a monthly basis.
[00:23:26.990] - Chris Griffin
[00:23:27.480] - Penny Wade
They're going to interact with the gentleman that my employee that deals with just assets, just whenever assets are bought, he's going to reach out to them, make sure we have the terms of the deal correct. They meet with me or one of what I call my other end product employees, or an end product being a tax return or a financial report in general. There's three in my office that do that. They're going to meet with us at least three times a year or any other time they call and say, I want to meet. But for sure, we're sitting down and we are going through the books. We don't go through them monthly. That's our bookkeeping staff's job. But we will pick them up and we put another set of eyes on them. And from our perspective and the things that we're looking for to make sure that we've got them all accurate by the end of the year.
[00:24:17.940] - Jordan Turnage
Yeah, I will say. I won't say that I've eavesdropped on conversations with Jarrod and clients just in know, since we all share a hallway, Jared doesn't talk over his clients. These are big business decisions and big numbers that we're working with and we're working with big operations here. And Jarrod was able to make it just one on one. And just like we were talking about earlier, just as simple as saying you got a tractor this year. Maybe we need to figure out a way to set that up on appreciation scale or just nothing too analytical. He's able to simplify things and make it very comfortable. I know we've had several come in and out of the office for the past couple of months, and I would say that none of them treat it like I got to go sit and talk with them. It's always a positive, encouraging experience for everybody. And I think that just speaks well of the example that you and your father have set forth for the employees and the legacy going really just. I commend you for that.
[00:25:39.740] - Penny Wade
Let me just ditto that. Jarrod is really, really good at communicating with clients. He has lots of skills and that's one of them. He does a very good job with that. And we do. We want to keep our clients educated, too, to the extent that they want to be educated, and we want them to be as educated as they want to be, that they understand the decisions and why we're making them and how the tax and the implications of it all?
[00:26:05.910] - Chris Griffin
Well, one other thing, because you touched on it briefly at the very beginning, but you got three kind of separate divisions there, the estate part of it. I'm kind of dealing with this right now, my own family and this year. And so can you kind of explain what service that is and what all you can provide with that? Because I know with a lot of these farmers, with the operation and the land and different things, it's pretty complicated.
[00:26:33.530] - Penny Wade
It is extremely complicated. There is no more difficult part of the tax code than estate tax planning. Number one, you've got two really big unknowns. Number one, what year am I going to die? And then the second one, what are the laws going to be in the year I die? So those are two really huge unknowns. And we're talking about millions and millions of dollars worth of assets in a farming operation. So all the estate planning right now is done by me. So even out of Jared's office, if somebody there wants to do some estate planning, they send that all to me. I've been doing it now for about 15 years, and it really comes from a level of experience. It's really something. You have to sit in the room lots of times to understand how many different ways there are to tackle estate issues. So our primary focus, number one, is if we have somebody that has a taxable estate, that means that when they die, that somebody's going to add up everything that they're worth. It's going to get appraised, okay. At their death. And if it is a taxable estate, if it goes over the exemption, which right now is 13 million per person, that number per person.
[00:27:44.440] - Penny Wade
Per person per spouse. Okay. That seems like an incredibly high number. So a lot of people that doesn't get into that category, however, that number is going to go back to 5 million or maybe a little bit inflated at the end of 2025.
[00:28:02.920] - Chris Griffin
[00:28:03.550] - Penny Wade
So to take advantage of that $13 million, you need to die before the end of 2025 or you need to go ahead and make some gifts out of your estate before the end of 2025. So we have been focusing on our clientele that have taxable estates right now to try to help them take advantage of this really high exemption that's slated to go away. Now this is all politics, so we don't really know what's going to happen.
[00:28:33.090] - Chris Griffin
Like you said, you never know because you could have everything lined up and buttoned up. Exactly. And then in five years the tax will change. It will change. It's inevitable.
[00:28:44.070] - Penny Wade
But if there comes a law that's incredibly beneficial, we want to jump in while we can and take advantage of it. So we're working with. It doesn't take a whole lot of farmland to get there. Now you know what it's going for.
[00:29:02.190] - Chris Griffin
You were saying that I think the average person maybe who doesn't deal with this, they'd be like, oh, but if you own a large amount of acreage with how acreage is selling per acre now and then you throw your equipment in there.
[00:29:17.860] - Penny Wade
[00:29:18.200] - Chris Griffin
Your combines and your equipment and everything else. I know the prices of those. It probably doesn't take then if you have any investments or mutual funds or retirement accounts or anything, I mean, it probably doesn't take a lot.
[00:29:32.230] - Penny Wade
It doesn't. We're not talking about profit here. You know the farm analogy that you're asset rich and cash. So the cash poor part is income tax that you're paying every year. The asset rich part is estate plan.
[00:29:48.350] - Chris Griffin
And they're asset heavy and we're asset heavy.
[00:29:50.600] - Penny Wade
Yes, exactly. So we're trying to get in there, but everybody needs an estate plan, even if they don't have a taxable estate right now, or if they don't think they do, you have to remember that farmland appreciates 5% a year. I've done a study of USDA data and it's pretty steady now. Right now we're kind of spiking, but that will level off at some point. So that means every 15 years, the value of your land is going to double. Okay. So do you plan on living another 15 years?
[00:30:19.850] - Chris Griffin
I hope so.
[00:30:20.620] - Penny Wade
What's my land worth right now? Okay. We've got land that's appreciating. It's going to double in value in 15 years. And we've got an estate exemption that's coming down $8 million, which is.
[00:30:35.370] - Chris Griffin
That's just funny to me. I think that's hilarious. The government's like, hey, wait a second. We're going to go ahead and you.
[00:30:42.430] - Penny Wade
You can't make sense of the law.
[00:30:43.600] - Chris Griffin
No, you can't.
[00:30:45.230] - Penny Wade
And you can't make sense of tax laws. They don't make sense. You just got to learn them and try to deal with them now.
[00:30:49.810] - Chris Griffin
And it's only because I've dealt with this this year and this is something that you might be able to explain a little better. A lot of people have their land in trust.
[00:30:58.610] - Penny Wade
[00:30:59.190] - Chris Griffin
Can you explain, is there a benefit, just the land portion? Like I've seen people, just their house or just the actual acreage. Can you explain when that is a good option for one of your customers and what the benefit of that would be?
[00:31:11.500] - Penny Wade
Okay, so there's two different types of, actually, there's multiple types of trust, but I'm going to categorize them into revocable and irrevocable. Okay. So a revocable trust is exactly what it sounds like. You can revoke it. Okay? You can change your mind. You can put your land in this revocable trust. And all it does from you, from an estate point of view, is it makes it passed to the next generation without going through probate.
[00:31:36.490] - Chris Griffin
[00:31:37.070] - Penny Wade
It is still in your taxable estate. Okay? So it is going to get included. You did not give it away because you can revoke it and take it back. Okay. The word trust gets thrown around a lot and you've got to say, okay, let me read your trust. What does it say? So a revocable trust does nothing for estate planning. It's just all about getting assets passed to the next generation simply and without going through probate.
[00:32:07.570] - Chris Griffin
I got you.
[00:32:08.220] - Penny Wade
So now let's move to an irrevocable trust. So an irrevocable trust is what it sounds like. You cannot change, revoke it without a judge allowing you to. And they're pretty tight on the strings there. Okay. So they're not always going to approve it. They might change some parts of the trust, but getting what the grand tour of the trust wanted changed is not going to be very likely. So it's irrevocable. When you give land to an irrevocable trust, you no longer own it. Okay. It has to be a completed gift. You have given it away. So when that happens, it comes out of your taxable estate. Now, here's your benefit. This is why I love this so much. I feel like probably nerd.
[00:32:55.170] - Chris Griffin
No, I think it's super interesting.
[00:32:58.570] - Penny Wade
All of this land away. Let's just say that's worth a million dollars. I'm going to give it to my irrevocable trust. I have given it. It is outside of my state. I can set that trust up where I am still getting the income off of that land during my lifetime. So my farming operation will now have to pay land rent to my trust.
[00:33:19.660] - Chris Griffin
[00:33:20.460] - Penny Wade
I don't own that land anymore, but I can, during my lifetime, pull out money for my well being. Okay, but that trust is going to file its own tax return?
[00:33:29.780] - Chris Griffin
[00:33:30.180] - Penny Wade
Okay. An irrevocable trust. A revocable trust doesn't. It's just disregarded for tax purposes. It just doesn't exist.
[00:33:37.770] - Chris Griffin
Most time, it doesn't really kick in gear until that person.
[00:33:40.150] - Penny Wade
There are revocable trusts that will turn irrevocable at death. Okay? So let's just say you, given that now it appreciates in value. And so in five years, the land is worth 5 million. I mean, 15 years, it's worth $5 million. So one of the benefits is getting it out and letting it appreciate in value outside of your estate.
[00:34:02.070] - Chris Griffin
[00:34:02.670] - Penny Wade
Then at your death, it will pass to whoever you said, but it's not going to get included in your taxable estate. And potentially your heirs will not pay tax on that.
[00:34:12.390] - Chris Griffin
And from my understanding, let's say you got 800 acres, right? You're really going to pay taxes on, really, a stepped up basis? A lot of times from day to death is kind of what I've heard from some people. What? I don't know, a farm way.
[00:34:27.450] - Penny Wade
It's the same way. Not exactly. You're close. If I can help you with that. So there are two types of tax going on here, one is just a state tax. It is how much I am worth at my death.
[00:34:42.800] - Chris Griffin
[00:34:43.310] - Penny Wade
If it's over that exemption, your heirs or whoever's settling your estate will have to pay Uncle Sam 40% of whatever goes over that number.
[00:34:55.440] - Chris Griffin
[00:34:55.980] - Penny Wade
[00:34:56.400] - Chris Griffin
[00:34:57.250] - Penny Wade
So that is one thing that we're talking about. Help me out. What was the other thing you said? Not forgotten.
[00:35:03.710] - Chris Griffin
Oh, heck, I can't even remember now. Stepped up basis, maybe.
[00:35:06.210] - Penny Wade
Oh, stepped up basis. Thank you. So the stepped up basis comes into play. If I leave somebody, just my land, at death, and I'm just leaving it to you outright.
[00:35:18.490] - Chris Griffin
I got you.
[00:35:19.180] - Penny Wade
You're going to get what's called a stepped up basis in it. The basis of the land is what you paid for it, essentially, or however you got it. If it was given to you, then it's the basis of the person that gave it to you. But at death, if you inherit land, the basis gets stepped up to the fair market value. So I got you. Let me say this clearly. If you die or somebody you know dies, get that land appraised. If you've inherited it, that's your basis. Because one day you're going to want to do something with that, and you're not going to have a basis in it.
[00:35:53.090] - Jordan Turnage
You're totally at the whim.
[00:35:54.390] - Penny Wade
Well, the IRS says if you cannot establish your basis through a recognized method, like an appraisal, not a Wade Farm report. Okay. It has to be through a certified appraiser, then basis is zero. So this happened with my parents recently, just both passed away. So I inherited. My brothers and I inherited their house. We got a stepped up basis in it, and then we turned around and sold it for basically what the basis was. Right. So we paid zero tax on it. So that's what's going to happen. That's what you're talking about? Yeah.
[00:36:25.160] - Chris Griffin
And I just thought that was. I've just seen a lot of, on the farm operations, I've just seen a lot of land that's in large acreage that's in trust, or you'll have somebody come in here wanting to borrow money, and they may be part of a trust. And so I'm glad. Thanks for clarifying that.
[00:36:39.570] - Penny Wade
Yeah, you got to read that trust. They can say whatever.
[00:36:43.970] - Jordan Turnage
We've got to get you back in here.
[00:36:46.370] - Chris Griffin
[00:36:47.140] - Chris Griffin
This is super interesting.
[00:36:49.170] - Penny Wade
Well, some more nerds.
[00:36:51.570] - Penny Wade
I would say I'm right there. I'm a nerd, 100%.
[00:36:55.030] - Jordan Turnage
So, just for clients that come to you, what would be your checklist of items that they would need to bring to you before they come in, just to kind of give an idea for folks that haven't worked with you in the past or maybe their first meeting or something.
[00:37:10.600] - Penny Wade
Okay, so we're going to want to see their last three years of tax returns for sure, because there's a thing called farm averaging that a lot of tax professionals don't know about that we can go back and look at prior year tax returns since they were in lower brackets, tax their income this year at a lower tax rate. So I'm always going to want to see three years. We're also going to need depreciation schedules of everything they have. If they have a financial report, which most of them do not, we're going to try to get our hands on that. Maybe you've done something for them in house, so we'll try to get whatever we can, but they're going to spend a lot of time with us that first year because we're going to have to recreate from scratch what we've been doing for generations with our clients. Because a lot of our clients are multigenerational. Yes, they were with dad. They're with me. I have a son in the business. We've got a next generation coming up. So we've been building these lists for years. So that first year is tough. A lot of people don't know what they have.
[00:38:07.370] - Jordan Turnage
Well, honestly, for dollars and cents, I'm sure.
[00:38:11.090] - Penny Wade
Yeah, we've got to go back and figure all that out. So we'll be spending a lot of time with them, but we'll want their bank statements sent to us monthly. So we get them usually just emailed from the bank. And that just kind of bypasses them so we can get them keyed into our bookkeeping system. And then they're going to spend quite a bit of time just with us in determining what are the missing pieces and finding out what their needs are. Usually like with estate planning, I can't even start that for a year or two. I don't know what they're worth. Paint the picture of what, depending on the size of the operation, that could take a year or two to kind of get that nailed down a forest.
[00:38:52.340] - Jordan Turnage
For the trees kind of deal.
[00:38:53.360] - Penny Wade
Yes, we've got to weed through things and find out what it is, and it takes a bit of time.
[00:39:00.030] - Jordan Turnage
And that as far as human characteristics dealing with different personalities, and I won't name names, I have clients that are particular about getting their stuff from. So it's a real opening up process that you have to have and have to be able to do in this process. But it's all to everybody's benefit in the long run.
[00:39:24.050] - Penny Wade
And I'm glad they don't like it all that much. It gives me something to do in life, right? Because if they all could do what I did, then I wouldn't be needed. I try to remember that even when I'm dealing with clients that are not as good at getting me records as others, it's like, well, this is what they pay me to do. And because they don't like to do it, I have a job and a purpose in life.
[00:39:44.110] - Chris Griffin
[00:39:44.480] - Penny Wade
So we're going to just start there and work with them now. Not to say at some point and this has happened, I decide this is not a match. We are not going to do it if we cannot ever get to the correct answer. So if that is in play, then we just will part friendly and say, we're not the match for you. There's somebody else that can do it the way you want it done. It's not going to be us.
[00:40:13.570] - Chris Griffin
Well, Penny, I don't even know what to say. I've learned a lot and my head's still spinning a little bit, but I'm a little bit of a nerd when it comes to this stuff anyway, and I find it really interesting. So I could probably talk to you.
[00:40:25.530] - Chris Griffin
For another 20, 30 minutes, to be honest with you.
[00:40:27.210] - Penny Wade
But maybe everybody else is ready for us to take a break.
[00:40:28.620] - Chris Griffin
If they're driving and listening to this, maybe they're ready for a break.
[00:40:33.550] - Penny Wade
[00:40:34.040] - Chris Griffin
But we really appreciate you coming in and taking time out of your day. I know you're busy and it was great meeting you and talking to you about some topics that are really important to our business.
[00:40:45.710] - Chris Griffin
Absolutely. But thank you so much.
[00:40:47.950] - Penny Wade
[00:40:49.230] - Jordan Turnage
Love to have you back. So thank you so much for coming. And as always, folks, thank you so much for listening to the Back to Your Roots podcast for Chris, I'm Jordan. Thanks for listening.
[00:40:58.170] - Chris Griffin
Thanks for tuning in to Back to Your Roots where we dish the dirt on all things ag. Be sure to never miss an episode by following and subscribing while there. Leave us a review about what you want to hear next. Stay in the know between episodes by following us on Facebook, Instagram, Twitter link and TikTok. For more resources, go to our website at rivervalleyagcredit.com.