“What can I do to make sure the family farm stays in the family?” I have the pleasure of working with many family farmers, and this is the most frequent question I receive. To plan properly, we need to be aware of the types of threats to your family farm. We need to consider the threats both before and after your death. This article discusses three threats in particular: long-term care costs, liability from law suits, and the third-party purchaser.
Long-Term Care Costs
Often the greatest threat to Ohio estates is the cost of long-term care at nursing homes and assisted living facilities. Without proper planning, many Ohio farmers are forced to sell their homes and farmland to pay for this type of care. This unfortunate reality is often a huge surprise and only discovered once it is too late. It doesn’t have to be this way for your farm. Farmers can plan ahead, utilizing certain types of protection trusts, to ensure that the house or farm is not lost to future long-term care costs. Proper planning can also avoid the capital tax problems incurred through simply transferring ownership of your farm to children. It also prevents the farmer from being exposed to children’s liabilities. Even in a nursing home emergency, planning can be done to protect a portion of the estate.
Many family farmers are concerned about potential liability from lawsuits. Whether it’s a car accident or an injury on the farmland, if Farmer Jim owns everything in his name, his entire estate is exposed to these liabilities. To put it concisely, if Jim hits a man in the crosswalk, he might lose the entire farm. Likewise if a neighbor kid gets injured while riding a dirt bike on Jim’s property, he might lose his house or even his spouse’s retirement account. If you want to protect yourself from these types of liabilities, consider using the appropriately named option, Limited Liability Company (or “LLC”). A properly designed LLC can help shield personal assets from the liabilities of the farm, rental, or other business.
Once the family farm passes on to the next generation, what’s to keep one or more of the children from selling their shares to the highest bidder? We understand. It’s common that multiple children are going to inherit a part of the farm, but only one wants to actively farm. As any farmer knows, there’s often an anxious bidder waiting in the wings to try and purchase farmland from a willing seller. Thankfully, planning mechanisms such as “rights of first refusal” can be used, often in conjunction with an LLC, to put rules in place for future sales of the farmland. Not only that, but the pricing formula can be determined ahead of time and may allow other children to purchase land at a discount to further incentivize keeping the farm in the family.
Long-term care costs, lawsuits, and third-party purchasers are just a few of the troubles that could prevent your family farm from staying in the family. To learn more about how to protect your family farm and ensure it remains a legacy for years to come, contact your local AlerStallings attorney to arrange for a complementary consultation. AlerStallings: a lifetime accumulating wealth, and afternoon preserving it.