Brochure

Passing The Pitchfork

Posted on: December 7th, 2018 by

 

Throughout the Autumn season, farmers open their [barn] doors to those looking to experience fall on the farm. Here in the Hudson Valley, locals and visitors alike enjoy apple picking, harvest festivals, and pumpkin-spiced treats.

Agriculture is big business in New York, and it accounts for hundreds of thousands of jobs statewide. According to the Census of Agriculture taken by the U.S. Department of Agriculture in 2012, there were over 650 farms in Orange County, N.Y., spanning over 88,000 acres. The New York State Department of Agriculture and Markets estimates that about 20 percent of the state’s land area, or over 7 million acres, is farmland. In 2016, the New York agricultural industry was worth $5.05 billion; the ‘Big Apple’ was the leading producer of yogurt, cottage cheese, and sour cream in the nation. We actually ranked second nationally for apples, along with snap peas and maple syrup. Some of our other top agricultural products include corn, hay, cattle, and floriculture.

So, how does a family farm continue to operate as the farmer gets older, falls ill, or passes away? The 2012 Census of Agriculture reports that New York is among 22 states with a decrease in the number of farms in the last decade. The Small Business Administration reports that less than 33 percent of family-owned businesses survive the transition from the first generation to the second, and that number is further reduced upon the transition to the third generation. As Austin DuBois describes in his article in this newsletter, The Hudson Valley Farm Business: An Exciting Time, farming is a unique industry requiring knowledge in a number of areas; not just anyone can take over operations. It takes comprehensive business and estate planning to ensure that the farm transitions as intended and continues to succeed.

PLANNING FOR DISABILITY

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.

 

GLOSSARY:

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

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