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.
Ohio State Extension will host a virtual three part "Planning for the Future of your Farm" webinar series. The webinar series will span over three Monday evenings from 6:30 to 8:30 p.m. starting on February 15, 2021 and concluding on March 1, 2021. This workshop is designed to help farm families learn strategies and tools to successfully create a succession and estate plan that helps transfer the farm's ownership, management, and assets to the next generation.
Topics discussed during this series include:
- Developing Goals for Estate and Succession;
- Planning for the Transition of Control;
- Planning for the Unexpected;
- Communication and Conflict Management During Farm Transfer;
- Legal Tools and Strategies;
- Developing Your Team;
- Getting Your Affairs in Order; and
- Selecting an Attorney
This workshop will be taught by members of the OSU Farm Office Team featuring Peggy Hall & Jeffrey Lewis, Attorneys from the OSU Agricultural & Resource Law Program and David Marrison, Extension Educator for Coshocton County.
Because the workshop is online, you can invite your parents, children, and/or grandchildren to join you as you develop a plan for the future of your family farm, regardless of where they live in Ohio or across the United States.
Pre-registration is required. One hard-copy of program materials will be mailed to participating farm families. Electronic copies of the program materials will also be available to all participants. The registration fee is $40 per farm family. The deadline to register for the webinar series is February 10, 2021. You can register online at the "Planning for the Future of Your Farm" webinar registration page.
A three part "Planning for the Future of Your Farm" webinar series.
Monday, February 15, 2021 from 6:30 to 8:30 p.m.
Monday, February 22, 2021 from 6:30 to 8:30 p.m.
Monday, March 1, 2021 from 6:30 to 8:30 p.m.
$40 per farm family.
Registration deadline is February 10, 2021.
You can find more information about the webinar series by visiting the "Planning for the Future of Your Farm" webinar registration page. If you have any questions or concerns, please contact David Marrison by phone at (740) 622-2265 or email at email@example.com.
We look forward to seeing you there!
Sometimes you happen upon a question that you want an answer to, and the answer you find raises more questions. That’s exactly what happened when we started examining Limited Liability Company (LLC) statutes from across the Midwest.
Originally, we wanted to determine whether there are any significant legal differences between the LLC statutes of different states. While we may be based in Ohio, we find projects that examine how different states compare to one another on the same legal topic fascinating. The comparisons allow us to see trends and different ideas, and we had the chance to do this in our recently completed projects on CAUV and agritourism.
Ultimately we found the Midwestern states to have functionally similar LLC statutes, with about half of the Midwest having adopted a uniform statute. When a state adopts a uniform statute, it intends for its law on a given topic to match those of other states with the same uniform statute. There are other examples of these like the Uniform Commercial Code, Uniform Probate Code, and more. Uniform codes are designed to make it easier for people to do business and live their lives across state lines. For Midwestern LLC statutes, even in states that have not adopted a uniform statute, the key elements are still very similar. The statutes have filing procedures for creating the entity, default rules for operating agreements, and rules that govern LLCs in general.
When we answered our questions about the state statutes, we became curious about some of the benefits offered by using an LLC instead of some other business form. We found that LLCs offer great liability protection, with some specific limitations such as the application of piercing the veil from corporate law. Further, pass through taxation can provide great tax benefits and avoid double taxation. Since states allow operating agreements to be highly customizable, LLCs also provide a flexible entity structure that may be adapted to suit the needs of a business or family.
That last word led us to another question: what benefits does the LLC structure offer a family farm in its estate and business transition plan? The previous three benefits are well known and thoroughly discussed; however, this last one, while done a lot in practice, is not commonly mentioned in academic writing. Ultimately, the benefits in estate and transition planning come from the flexible nature of the operating agreement.
How can LLCs be helpful in an estate and business transition plan for a farm? Here’s a few ways:
- Restrict the transfer of an ownership interest through rights of first refusal and buy-out provisions
- Restrict membership and voting power of non-family members
- Transition equity ownership more easily than in a corporation
- Transition the business in relative privacy
Once we learned about these benefits, the question arose of how common farming LLCs now are. Using data from the USDA’s Census of Agriculture, we found that by 2012, there were almost as many farms organized as LLCs as there were farms organized as corporations, while the vast majority of farms remained owned outright by individuals with no formal legal entity. We are waiting for the next Census of Agriculture to spot any trends, because 2012 was the first year that farms were asked to identify whether they were organized as LLCs.
Throughout the paper, we made some observations and predictions for what we expect to see in the future. We are also history buffs, so of course there had to be a section on the origins of the LLC, and why Wyoming was the first state to adopt an LLC statute. It is an interesting and dramatic history that we had not heard about before.
Our project examining farm LLCs is available on our OSU Extension Farm Office website HERE, as well as the National Agricultural Law Center’s website HERE. This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.