After many years in private law practice, OSU’s Robert Moore knows the unique estate planning challenges farm families face. The capital-intensive nature of farming and the family legacy associated with it are just two of the many issues that contribute to those challenges. But Moore also knows there are legal strategies that can help farm families meet their estate planning needs.
Join Moore as he reviews both the challenges of farm family estate planning and ways to address those challenges in a webinar this Wednesday at Noon. The webinar offers a chance to learn more about topics such as dealing with on-farm and off-farm heirs, distribution plan ideas, and how trusts can benefit a farm estate plan. The National Agricultural Law Center will host the webinar as part of its free monthly webinar series. Registration is necessary and is available online at https://nationalaglawcenter.org/webinars/estate-planning/.
The webinar represents an ongoing partnership between OSU’s Agricultural & Resource Law Program and the National Agricultural Law Center. For eight years, the two institutions have worked together to bring agricultural law research and information to the nation’s agricultural community with support from the USDA’s National Agricultural Library. Our agricultural law library on farmoffice.osu.edu contains many resources developed through this partnership, including recent publications on Planning for the Future of Your Farm, Keeping Farmland in the Family, and Long-Term Care and the Farm. Those and a multitude of other agricultural law resources are also available on the National Agricultural Law Center’s website at nationalaglawcenter.org.
If you’re not available to attend the webinar this Wednesday, find a recording of it and all other webinars in the monthly series at https://nationalaglawcenter.org/webinars.
We're happy to announce our popular “Planning for the Future of Your Farm” webinar series for 2023. The four-part online series will be on January 23 and 30 and February 6 and 13 from 6:30 to 8:00 p.m. This workshop will help farm families learn strategies and tools for transferring farm ownership, management, and assets to the next generation.
Here's what the webinar will cover:
- Developing goals
- Planning for the transition of management
- Planning for the unexpected
- Communication and conflict management during farm transfer
- Legal tools and strategies
- Developing your team
- Getting your affairs in order
- Selecting an attorney
You and your family will learn from two of Ohio's top farm transition experts:
- Robert Moore, Attorney with our Agricultural & Resource Law Program. If you didn't already know, Robert was in private practice for 18 years before joining our program. He provided legal counsel to farmers and landowners across Ohio on business, farm transition, and estate planning.
- David Marrison, OSU Extension Field Specialist in Farm Management. David has been with OSU Extension for 25 years and is nationally known for his teaching in farm succession. He has a unique ability to intertwine humor when speaking about the difficulties of passing the farm on to the next generation.
Because of its virtual nature, you can invite your parents, children, and grandchildren to the webinar, regardless of where they live in Ohio or across the United States. The webinar offers an easy way to include all family members in learning about how to develop a plan for the future of your family farm.
Families must pre-register for the workshop by January 16, 2023 at go.osu.edu/farmsuccession. We appreciate the support of the Ohio Corn & Wheat Growers Association in sponsoring the workshop and helping us keep the cost at $75 per farm family. The registration includes one printed set of materials that we'll mail to a family member, and other members will have access to electronic copies of the materials.
In-person workshops planned also
Several of our OSU Extension county educators are also hosting day-long in-person versions of the workshop on these dates:
- December 15, 2022 in Auglaize County at The Palazzo in Botkins. Find more information here.
- January 19, 2023 in Fairfield County at the Fairfield County Agricultural Center in Lancaster. Find more information here.
Don't miss out
We hope you'll join us for this important series! Even if you already have an estate plan or have begun one, this workshop should help you learn more and ensure that you're effectively addressing your goals for the future of your farm and farm family.
For additional information David Marrison at firstname.lastname@example.org or 740-722-6073.
As 2022 winds down, it’s not too early to start thinking about projects for 2023. One project, if you have not done so in a while, is to review your estate plan. Estate plans should be reviewed occasionally and updated as needed. The following are some items to look at when reviewing an estate plan.
Health Care Power of Attorney. Check who you have identified as your health care power of attorney. Is the designated person(s) who you want to act on your behalf and is their address and phone number up to date? It is also good to have a backup power of attorney in case your primary person is unable or unwilling to serve.
Living Will. If you have a Living Will, check to be sure the contact person(s) and their contact information is up to date. Remember that a Living Will is the end-of-life directive that gives permission to a doctor or hospital to withhold or discontinue artificial life support.
Financial Power of Attorney. You should also check to see who you have designated as your financial power of attorney and make sure their contact information is current. Do you want to make changes to who will serve as your financial power of attorney?
Wills/Trusts. These documents determine who will inherit your assets when you pass away. Review who you have selected for to serve as the executor/trustee and if you should make changes to these designations. For people with minor children, do you have a guardian named for your children and do you want to make any changes? Also, review the distribution plan to see if it will work with your current goals and ideas or should you make some changes.
Balance Sheet and Assets. We don’t always think about balance sheets with estate plans, but they are a key component of good estate planning. One issue to address is net worth. Is your net worth less than the current $12.06 million/person estate tax exemption? Will your net worth be less than the exemption in 2026 when the exemption reverts to 2017 values (probably around $7 million per person*)? If you answer no to either of these questions, you should make an appointment with your attorney to address your net worth issue.
The other reason to review your balance sheet and assets is to try to make everything non-probate. All titled assets can be made non-probate through titling. Did you buy a new truck or trailer and forget to title it non-probate? Avoiding probate is relatively easy but it must be done prior to death. If you have any questions about probate, contact your attorney and review your assets with them.
If you get a chance before 2023 gets too busy, take an hour or two and review your estate plan. You might be surprised that you have forgotten some of the details of your plan. Having a good, up-to-date plan is important to make sure that you can pass along assets to your beneficiaries in the most efficient and practical way you can.
*Unless extended by Congress, the estate tax exemption will revert to the 2017 exemption amount which was $5 million. The amount is indexed for inflation so an exact number cannot be known for 2026 but a reasonable estimate is $7 million.
Long-term care costs are a threat to family farms. In fact, we predict that long-term care costs are the biggest financial threat to farm families, even more so than federal estate taxes. That’s because long-term care can affect every farm--and when cash or insurance runs out, farm assets may have to be sold to pay for long-term care. With an increasing elderly population and rising health care costs, the financial pressure of long-term care on family farm succession will probably grow in future years.
What can farm families do to protect farm assets from the risk of long-term care? Our latest publication by attorney Robert Moore, Long-Term Care and the Farm, addresses this question. The publication begins with an important first step: understanding long-term care risk. What is the chance that a farmer will require long-term care, what kind of care is most common, and what how much will it cost? Robert presents data and statistics that help us predict the expected type, length, and costs of long-term care services a farmer might require.
Once we assess long-term care risk, the next important question is how to pay for long-term care while keeping farm assets secure. Robert explains how Medicare and Medicaid programs can apply to long-term care costs. He then presents several legal strategies to mitigate long-term care risk and protect farm assets. The guide wraps up with a process a farm family can follow to assess long-term care risk for their individual situation.
It's possible to keep family farmland and the family farm businesses safe from the risk of long-term care. If long-term care is a concern for your farm family, be sure to read this important new publication and talk with an agricultural attorney about protection strategies. The publication is available at no cost through our funding partnership with the National Agricultural Law Center and the USDA National Agricultural Library. Read Long-Term Care and the Farm here.
Farmland can be a family's most important asset, recognized for both its heritage and financial value. Here's some proof: over 1,900 "Century Farms" in Ohio have been in the same family for over 100 years. And 130 of those farms have been in the same family for over two centuries -- testaments to the importance of farmland to Ohio families.
But there are threats that can cause farmland to leave a family despite its value to family members. Long-term care costs, divorce, debt, co- ownership rights, poor estate planning -- these are situations that can put family farmland at risk. The good news is that legal strategies can counter these threats.
In our new publication, Keeping Farmland in the Family, we offer five legal tools that can help keep farmland in a family:
- Agricultural or conservation easement
- Right of First Refusal
- Long-term lease
- Limited Liability Company
These legal tools offer a range of protection for family farmland, allowing a family to use a highly restrictive strategy that protects land for many generations or a less restrictive approach that secures land only for a generation or two. Examples provided throughout the publication can help farm families see how different scenarios play out. The guide does not intend to substitute for individual legal advice, but offers a family a starting point for discussion and decisionmaking with an agricultural attorney.
As anyone who has been an executor of an estate or has had to deal with an estate knows, the probate process can be slow, cumbersome and expensive. Fortunately, much probate, and sometimes all probate, can be avoided with some planning and diligence. The following is a brief discussion on how to avoid probate with different types of assets.
Survivorship Deeds. Ohio law allows co-owners of real property to pass their share of the property to the surviving co-owner(s) upon death through a survivorship deed, also referred to as a “joint tenancy with survivorship rights.” This type of deed is common in a marital situation, where the spouses own equal shares in the property and each becomes the sole owner if the other spouse passes away first. The property deed must contain language such as “joint with rights of survivorship”.
Transfer on Death Affidavit. Another instrument for designating a transfer of real property upon an owner’s death is the “transfer on death designation affidavit.” This affidavit allows property to pass to one or more designated beneficiaries if the owner dies. The process is simple, it requires the owner to complete an affidavit and file it with the recorder in the county where the land is located. Upon the owner’s death, the beneficiary records another affidavit with the death certificate and the land is transferred without probate.
Ohio law also allows motor vehicles, boat, campers, and mobile homes to transfer outside of probate with a transfer on death designation made by completing and filing a Transfer on Death Beneficiary Designation form at the county clerk of courts title office. There is a special rule for automobiles owned by a deceased spouse that did not include a transfer on death designation. Upon the death of a married person who owned at least one automobile at the time of death, the surviving spouse may transfer an unlimited number of automobiles valued up to $65,000 and one boat and one outboard motor by taking a death certificate to the title office.
Payable on Death Accounts
All personal financial accounts, including life insurance, can include payable on death beneficiaries. The beneficiaries are added by using forms provided by the financial institution. Upon the death of the owner, the beneficiary completes a death notification form and submits to the financial institution with a death certificate. The beneficiaries are then provided the funds held by the account.
The many advantages of using business entities are well known but avoiding probate is an often-overlooked attribute of business entities. Ohio law allows business entity ownership to be transferred outside of probate by making a transfer on death designation. This is most commonly done with ownership certificates or within the operating agreement. Upon the death of the owner, the ownership is transferred to the designated beneficiary with a simple transfer business document.
Farms have many untitled assets such as machinery, equipment, livestock, crops, and grain. These assets can be made non-probate, but it will require either a trust or a business entity. For example, machinery can be transferred to an LLC. Then, the LLC ownership is made transfer on death to a beneficiary.
Ohio law allows probate to be avoided relatively easily. Estates worth many millions of dollars can avoid probate and make the administration easy. However, the owner of the asset must take the time and make the effort to change the title or add a beneficiary. An attorney familiar with estate planning can assist with making sure all assets are titled to avoid probate. The executor and the heirs of the estate will appreciate having little or no probate to deal with.
Do you worry about the possibility of long-term care needs and how those needs might affect your farming operation or family farmland? We'll examine that issue in an upcoming webinar for the National Agricultural Law Center. Join OSU Attorney and Research Specialist Robert Moore for the webinar, "Long-Term Care Impacts on Farming Operations."
Long-term care costs can be a significant threat to family farming operations. Nursing homes can cost around $100,000 per year, an expense that some farms cannot absorb while remaining viable. That's why many farmers believe long-term care will force the sale of farm assets, including farmland. But statistics and data indicate that, on average, this may not the case and that the average farmer can likely absorb the costs of long-term care. However, few farms can withstand the outlier scenario: where many years are spent in a long-term care facility.
In this webinar, Robert Moore will explore the costs and likelihood of needing long-term care. Using this data, he will analyze normal scenarios and the dreaded outlier scenarios of long stays in nursing homes. By understanding the actual risks of long-term care costs, we can better understand and assess strategies that can mitigate long-term care risks. Robert will review several strategies attorneys can use to lessen the exposure of farm assets to long-term care costs.
The National Agricultural Law Center (NALC) will host the webinar at noon on July 20. OSU's Agricultural & Resource Law Program is a research partner of NALC, and Robert's work is the result of funding provided by the USDA National Agricultural Library through our partnership with NALC.
There is no fee for the event, but registration is required. Register at https://nationalaglawcenter.org/webinars/longtermcare/.
We discussed long-term care (LTC) costs in our April 20 blog post and analyzed recent data to project that a 65-year-old Ohioan, on average, can expect about $100,000 in LTC costs, and double that for a married couple. In this post, we continue to examine LTC costs by addressing an important question for farmers: can the average farmer absorb this cost without jeopardizing the farm and farm assets?
First, we need to remember that any income received by the farmer could be spent on paying the LTC costs. Farm income, land rent, social security income, and income from investments can all pay for LTC costs. After income is used to pay for LTC care costs, non-farm assets, like savings, can be used to pay for the costs. It’s the portion of the LTC costs that income and savings cannot cover that causes farm assets to be at risk. For example, if the farmer has $40,000 in savings, using that savings to pay LTC leaves only $60,000 of farm assets at risk.
Let’s next turn to the risk to farm assets. While a farmer would never want to sell any farm asset to pay for LTC, their land is probably the last asset they would want sold. Most farmers would sell grain, crops, livestock, and machinery before they would sell land. So, if income and savings cannot pay for LTC care costs, how at risk is the land? Data can also help us answer this question. According to the Economic Research Service – USDA (ERS), the total amount of non-real estate, farm assets owned by farmers in the US for 2020 were as follows:
Financial Assets $92,013,020,000
Inventory (crops, livestock, inputs) $62,866,872,000
Total Non-Real Estate Farm Assets $533,688,897,000
The ERS further estimates that there were 2.02 million farmers in the US in 2020. So, on average, farmers owned $264,202 of non-real estate, farm assets. If income and savings are unable to pay for LTC costs, the average farmer would have an additional $264,202 of assets to sell before needing to sell real estate.
So, what does all this data tell us? On average, if farmers are forced to sell farm assets to pay for LTC, they will not need to sell their land. They may need to sell crops, livestock and/or machinery to help pay for the LTC costs but the land is probably safe. That is the good news.
The bad news is the above analysis is all based on averages. When dealing with large numbers, averages are very useful. We can say with some confidence that on average, a 65-year-old farmer in Ohio will spend around $100,000 on LTC. However, the numbers cannot tell us with any certainty what a specific farmer will spend on LTC. Farmer Smith in Delaware County, Ohio might never pay any LTC costs, might pay the average of $100,000 or they might be an outlier. An outlier is someone whose specific circumstances end up being significantly different than the average.
Being an outlier is what farmers are really concerned about regarding LTC. We all know someone, or have heard of someone, who was in a nursing home for 10 years. That’s close to $1 million in LTC costs. Few farmers have the income, savings and non-real estate assets to pay for $1 million of LTC.
So, what LTC planning for farmers really ends up being is protecting against the outlier scenario that puts the land at risk. Most 65-year-old farmers would probably sleep well at night if they knew they would only have $100,000 of LTC costs for the rest of their lives. That amount of LTC costs is probably not going to cause a farm liquidation. What keeps farmers up at night is the chance they will be the outlier and spend 10 years in an expensive nursing home.
The outlier scenario is important for farmers to understand as they develop their LTC strategy. For any risk management plan, the true nature of the risk must be understood and not just presumed. The fact is most farms can probably withstand the average LTC costs. It is also factual that most farms cannot withstand an outlier scenario of being in a nursing home for many years. This understanding is critical in developing a LTC plan. That is, the LTC plan should probably seek to mitigate the risk of being an outlier, not on being average.
Fortunately, there are strategies to help mitigate the risk of losing the farm to the outlier scenario, although each of the strategies have significant drawbacks. In future posts, we will discuss those strategies.
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
There is no doubt that Long-Term Care (LTC) costs are a financial threat to many farms. Some farmers go to great lengths to protect their farm assets from potential LTC costs. Protection strategies include gifting assets to family members, transferring farm assets to irrevocable trusts and buying LTC insurance. But what do the statistics say about the actual risk to farms for LTC costs?
According to the Administration for Community Living, someone turning age 65 today has an almost 70% chance of needing some type of long-term care services in their remaining years. Due to women having longer life expectancies, predictions are that women will need an average of 3.7 years of care and men will need 2.2 years. While one-third of today's 65-year-olds may never need long-term care support, 20% will need it for longer than 5 years. The following data from the ACL provides more details as to the type and length of care needed:
This table shows that of the three years of LTC needed on average, two of those years are expected to be provided at home and one year in a facility. It is noteworthy that a majority of LTC services are typically provided at home because most people do not want to leave home for a facility, some at-home care isn’t paid for, and home care is less expensive than facility care. Many people may think all LTC will be provided in a facility, but as the data shows, this is not usually the case.
The next important statistic is cost. The following are costs of various LTC services from the 2021 Cost of Care Survey provided by Genworth Financial, Inc.
Nursing home costs are significantly higher than in-home services. People may think of LTC costs in terms of nursing homes, but as discussed in the previous paragraph, the majority of LTC services are the less expensive, in-home type. So, while all LTC costs are significant, they might not be as high as commonly thought.
Let’s use this data to come up with some possible numbers for an Ohio farmer. Assume the following:
- A 65year-old farmer has a 67% chance of needing LTC
- The length of that care will be around 3 years
- 1 year of care will be unpaid inhome services
- 1 year of care will be paid, inhome services at around $60,000/year
- 1 year of care will be in a nursing home at around $90,000/year
Based on the above assumptions, a 65-year-old Ohioan, on average, can expect about $100,000 in LTC care costs ($60,000 + $90,000 x 67%). Keep in mind that these costs are per person and a married couple will have double these potential costs. The next question is, can the average farmer absorb LTC costs without jeopardizing the farm? That's a question we'll examine in a future post in the Legal Groundwork Series.
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
Most farmers do a great job of managing their taxable income. They buy inputs or machinery to offset the current year’s income and wait until next year to sell the current crop. This strategy works well but it catches up to the retiring farmer. In the year of retirement, a farmer may find themselves with an entire year (or more) of crops or livestock to sell and no expenses to offset the income. Additionally, machinery and equipment that will no longer be needed for production will need to be sold. Selling all these assets upon retirement without offsetting expenses can result in tremendous tax liability.
One strategy for retiring farmers to consider is using a Charitable Remainder Trust (CRT). The CRT is a special kind of trust that can sell assets without triggering tax liability while providing annual income for the retiring farmer. The CRT essentially spreads out the income from the sale of the assets over many years to keep the farmer in a lower tax rate bracket. Also, the CRT allows the retiring farmer to make a charitable donation to their charity of choice.
The primary component of a CRT strategy is that a CRT does not pay tax upon the sale of assets. Due to its charitable nature, a CRT can sell assets and pay no capital gains tax nor depreciation recapture tax. The retiring farmer establishes a CRT then transfers the assets they want to sell into the CRT. The CRT then sells the assets. For the strategy to work, the trust must be a CRT. A non-charitable trust will owe taxes upon the sale of the assets.
The proceeds from the sale of the assets are then invested in a financial account. The farmer works with an investment advisor to determine the desired annual income needed from the proceeds and then an appropriate investment portfolio is created. It is important to note that income calculations must include leaving at least 10% of the principal to a charity. The farmer may not receive all the income or the trust will not qualify as a charitable trust. The term of the payments from the investment portfolio cannot exceed 20 years.
After the financial account is established, the farmer will receive annual income. This income is taxed at the farmer’s individual tax rate. By paying the sale proceeds out over a number of years, the farmer’s income tax bracket can be moderated. Selling all assets in one year would likely cause the farmer to be pushed into the highest income tax and capital gains tax bracket, so spreading out the income keeps the farmer in a lower tax bracket.
Another important component of a CRT is the charitable giving requirement. As stated above, the farmer must plan to give 10% of the principal to a charity. The funds are provided to the charity when the term of the investment expires or when the farmer dies. Depending on the performance of the investment, the charity may receive more than 10% or less than 10%. The farmer must be able to show that when the investment account was established, the intention was for the charity to receive at least 10% of the original principal.
Consider the following examples, one with a CRT and one without.
Scenario without CRT. Farmer decided to retire after the 2021 crop year. Farmer owned $800,000 of machinery and $200,000 of grain. Farmer sold all the grain and machinery before the end of 2021. Farmer owed tax on $100,000 of ordinary income due to depreciation recapture on the machinery and sale proceeds of the grain. Farmer’s tax liability was $450,000 for the sale of the assets.
Scenario with CRT. Farmer established a CRT and transfered the machinery and grain into the CRT. The CRT sold the machinery and grain but did not pay tax on the sale proceeds due to its charitable status. Farmer established an annuity to pay out over 20 years. Each year Farmer receives $65,000 of income from the CRT. Farmer pays income tax on the payment but at a much lower rate than the previous scenario. At the end of the 20-year term, a charity receives $150,000 (original 10% of principal plus interest).
As the scenarios show, A CRT can save significant taxes for the retiring farmer. Also, a CRT allows a retiring farmer to make a charitable contribution to their charity of choice.
A retirement strategy using a CRT is not without its disadvantages. One disadvantage is the cost to implement the plan. A CRT plan is complicated and requires the assistance of an attorney, accountant, and financial advisor. The combined professional fees could be $25,000 or more. Another disadvantage is the inflexible nature of the plan. The CRT is an irrevocable trust; once the CRT is implemented the plan cannot be changed. If the retired farmer finds they need more income than allocated from the CRT, they are unable to make such a change.
Anyone considering retiring from farming should explore the possibility of incorporating a CRT into their plan. CRTs can save significant income taxes and provide for charitable giving, but it’s not for everyone. The potential tax savings must be enough to justify the significant costs to establish the CRT and the farmer must be willing to give up control of the sale proceeds. Retiring farmers should consult with their attorney, accountant and/or financial advisor to assess how a CRT might fit into their retirement plan.