Through proper and proactive planning, the farmer can protect the farm in the event the farmer becomes disabled without prematurely giving up control of the farm. Importantly, having a plan in place can prevent the farm business from stagnating in the event of the farmer’s disability, and dramatically reduce the risk of losing the farm when facing nursing home care can be mitigated.
Having a well-drafted Durable Financial Power of Attorney in which the farmer appoints an agent to handle his/her financial and real estate matters is important in planning for disability. The farmer should also have a Health Care Proxy, in which an agent is appointed to make health care decisions on behalf of the farmer. Having these documents in place will allow the agent to assist during the farmer’s disability without the need to bring a guardianship action. A Guardianship is a costly and time-consuming proceeding in which a court appoints a person to make the financial and/or health care decisions of the incapacitated farmer.
Planning for disability shouldn’t stop with the Power of Attorney and Health Care Proxy documents. If the farmer needs long-term care at home or in a nursing home, additional planning may be needed to preserve the farm from the costs associated with long-term care and for the farmer to qualify for Medicaid.
SUCCESSION PLANNING
Because the farm is often not only a business, but also a home and a family legacy, farm transition planning is a delicate process. For farm families, “equal” may not always be fair. With fewer farm children returning to operate the family farm, the farmer must carefully consider his/her objectives and the impact on the future of the farm if it is distributed to all children equally.
The farm business can (and should) be operating under a formal entity structure, such as a Limited Liability Company (LLC) or corporation. The farmer should be sure to have LLC or corporate documents drafted to account for the transition of the farm business. Those documents should also include terms and restrictions that reflect the farmer’s intent. To properly effectuate the transfer, the formation documents, buy-sell agreement, and lease agreements should all be consistent in facilitating the farmer’s objective.
Often the farm is a farmer’s largest asset. If the farm isn’t being distributed to the next generation in equal shares, making sure there are enough other assets in the estate to offset the distribution of the farm may be important in achieving the farmer’s estate planning goals. Life insurance with accurate beneficiary designations can help balance the assets.
Having well-drafted estate planning documents in place, such as living trusts and a last will and testament, will ensure the distribution of the farmer’s assets to his/her intended beneficiaries in accordance with his/her ultimate objectives.
A farm can be a complex asset, but its transition can be simplified with proper planning during the farmer’s lifetime. With some creativity and well-drafted documents, a customized protection and transition plan can be achieved to ensure that the farm continues for generations.
Durable Financial Power of Attorney: Grants someone legal authority to act on your behalf for financial issues in the event that you become incapacitated and are unable to make those decisions yourself
Health Care Proxy: Grants someone legal authority to act on your behalf for health-related issues in the event that you become incapacitated and are unable to make those decisions yourself
Guardianship: Proceeding in which a court appoints a person to make the financial and/or health care decisions of an incapacitated person