LLC's Can Save Farms

 

4 types of LLCs that can benefit farm operations

TAGS: RISK MANAGEMENT FARM SUCCESSION FARM OPERATIONS
Tom J. Bechman2 semitrucks at edge of farm field
LIMIT LIABILITY: Especially farms that operate semitrucks, even to haul their own grain, may want to consider separate LLCs for liability reasons, says lawyer John Schwarz II.
If you don’t already operate your farm business through limited liability companies, see if one or more of these would work for you.

John Schwarz II, Royal Center, Ind., is a practicing lawyer and a farmer. He strongly believes in limited liability companies as a great way to structure your farm business. An LLC limits personal liabilities and provides other benefits. So why don’t more farmers use them?

“The main reason is fear,” Schwarz says. “People fear things that sound complicated, and if you want to see farmers head for the door, just mention the dreaded words ‘more paperwork.’”

But Schwarz says setting up and operating an LLC is easier than most people think. “From an operational standpoint, all we’ve done is change the name on the checking account,” he says. “Like changing it from John Schwarz to Schwarz Farms LLC. Most of my clients agree that it’s not really that difficult.”

For both maximum liability protection and simplicity, Schwarz encourages clients to not put all their eggs in one basket. Instead, he recommends setting up multiple LLCs.

LLC types

Here are four LLCs to consider for your farm:

1. Operating LLC. This LLC functions similarly to the farm checking account for a sole proprietor, with most farm expenses paid from this account, Schwarz says. The only difference is occasional checks written from the operating LLC to the other LLCs. The goal is to have 99% of checks written by the operating LLC, and only 1% from the others.

2. Land LLC. Often, it’s best to start here, because land is typically the most valuable asset in a farm operation. Having your most valuable asset in its own LLC protects it in the event that another of your LLCs gets sued. In addition, renting land from your own LLC has a tax savings most farmers are unaware of.

3. Machinery LLC. Having machinery in its own LLC not only protects it but also helps when transitioning machinery to farming heirs. The only transactions here would include payments for new equipment, used equipment and updates. Fuel, repairs and insurance can be paid by the operating LLC, Schwarz says. Keep as many transactions as possible coming from the operating LLC.

4. Trucking LLC. “Trucks are the most dangerous piece of equipment on the farm,” Schwarz says. “If you’re in a wreck and get sued, how do you think the jury is going to react when they find out that you most likely don’t have a commercial driver’s license, or that your truck is not Department of Transportation inspected? It’s not going to be a good outcome. Putting your trucks into its own separate company insulates the rest of your LLCs from your biggest risk.”

In today’s farming environment, Schwarz says there’s really no excuse for not getting your farm set up in the appropriate legal structure. The cost is affordable, typically $2,000 to $3,000. There’s a bit of a learning curve, but he helps clients walk through the first year.

Schwarz encourages farmers to at least try one LLC. “Often, if having four LLCs seems overwhelming, I say, ‘Let’s just start with one or two and get our feet wet.’ Once they see the benefits, they establish more LLCs.

“I’ve used multiple LLCs on my farm, so I know it works. I tell my clients, ‘Give me a year, and if you’re not satisfied, I’ll help you undo everything, and I’ll refund your money.’”

He says he’s never had to do this.

Boone writes from Wabash, Ind.

Comments

Post a Comment

Popular posts from this blog

Estate Planning, Medicaid Preparation, or Both?

Image
 In our last article the discussion centered around the importance of planning in advance for the possibility of needing Medicaid in the future.   Essentially the idea being to plan for the worst, and hope for the best.   This type of forethought is imperative given that Medicaid requires planning to occur at least five years in advance of needing assistance with paying for the costs of home assisted living or long-term nursing care. The Medicaid Estate Recovery Program allows the government to place a lien on any real estate owned by the Medicaid recipient after death. If you are 55 years and older, and receive Medicaid coverage, your assets are subject to a Medicaid lien without the proper planning.    Depending on the level of care needed, according to recent Genworth figures, the average cost of assisted living is $4,500 per month, and the average monthly cost of skilled nursing is $8,910. Failing to plan for how to pay for these costs can result in the loss of a family farm, or
Read more

Medicaid-Why you and your farm should care.

Image
Medicaid – What is it and why should you (and your farm) should care? Our law firm frequently gets calls from clients wanting to inquire about making a Last Will and Testament or appointing someone as Power of Attorney.   This is quite often prompted by the death of a loved one, the diagnosis of an unexpected illness, or being told of a negative estate experience by a friend or neighbor.   Estate planning at any stage of life is something we would always encourage, but there is an aspect of planning that we often times find overlooked and that is planning in advance for Medicaid. There is much confusion about not only the difference between Medicare and Medicaid, but how and what each program covers specifically.   For the purposes of this article, we will be focusing the discussion on long term care needs such as the expense of a nursing home.   For that discussion, the only important thing to note about Medicare, including Medicare supplement insurance, is that it will not cov
Read more

Traditional Method of Farm Succession Planning Broken…. Here is How to Fix it. Part V-Land Division to Heirs.

Image
      (Note: This is part 5 of a 5-part series regarding the authors’ view that farm estate planning in this country is broken and needs fixed, especially in light of “Farm Estate Armageddon” that will happen this decade when ¼ of all farmers retire and 2/3 of all farmers will be over the age of 65.   Past articles can be viewed at www.farmlegacy.blogspot.com .               The year was 2007.   I was 2 years into practicing law and once a month my dad and I would meet with fellow farmers at a neighboring farm to discuss grain marketing.   A grain marketer, Steve, would facilitate the meetings.   For as long as I live, I will never forget a particular meeting when Steve showed up and passed out a packet of information that centered on the coming ethanol boom and how it would change things.   Steve looked at us and said “Boys, be glad you bought ground when you did”.   Steve also told us that we would all be raising just corn in the future as the ethanol demand would push corn con
Read more