Protect The Farm
You may be planning for your child to take over the farm. But suddenly, a fall or a dementia diagnosis changes everything. The biggest threat to keeping the farm in the family used to be estate tax.
Today, the biggest threat to your family farm is the cost of long-term care. Unprotected families find themselves selling off farmland to pay these ongoing long-term care costs which are often $6,000 to $12,000 per month.
Farmers often start as sole proprietors and nothing could be simpler. If you’re like many farmers, however, you want your farm to continue for another generation. If that’s the case, a sole proprietorship won’t work well. You need to set up the farm so that percentages of the farm business can be gifted or sold to those who want to farm, while keeping the farm as a single unit. To make sure this happens, you need a comprehensive succession plan to give your farm the best chance of surviving future generations.
Updated Powers of Attorney
As long as you’re the farm owner, you need updated healthcare and financial powers of attorney. These tools allow someone to step in and run the farm uninterrupted if you have a health issue.
Asset Protection Trust
In the past, many families simply transferred the farm directly to the children. However, the risk of financial problems or divorce means this is no longer the best method.
The best approach is often to create an irrevocable asset protection trust to protect the farm. Transferring the title to the farm can shelter it from being lost to long-term care costs while providing protection from the divorce or financial risks of the children. The children then inherit the property at the death of the parents which can eliminate significant capital gains tax problems that would occur if they simply transferred the farm to the children while they were alive.
While there isn’t a cookie-cutter approach to protecting your farm, one farm protection tool is the limited liability company (“LLC”). LLCs are often used to protect against creditors. For farmers, the primary estate planning benefit of an LLC is keeping the farm intact. This orderly approach helps establish ownership shares and lays out the rules if someone dies or wants to sell their shares. Providing rights of first refusal, discounting of shares, and pre-set financing arrangements are often part of setting up an LLC. Setting up an LLC in conjunction with an Asset Protection Trust can ensure that the farm stays intact for future generations to come.