Schwarz featured in Indiana Prairie Farmer

Get your farm ready to 'play defense'

TAGS: INSURANCE FARM SUCCESSION RISK MANAGEMENT
Darrell BooneJohn Schwarz II talking at podium
PROTECT THE FARM: John Schwarz II jokingly calls himself “the lawyer with the tractor.” He works to convince farmers why they need to structure their business properly.
Insurance is not enough. Select a business structure that provides personal liability protection.

News flash: Personal injury law is big business. There are hordes of personal injury lawyers, like “The Big Rig Lawyer” or “The Hammer,” promising to sue you and win a huge verdict for their clients and themselves. In contrast, lifelong farmer and ag law attorney John Schwarz II, Royal Center, Ind., operates a practice that helps farmers protect themselves in today’s precarious legal climate.

Schwarz says many factors have drastically increased risk and liability. They include:

  • an increase in farm accidents, up 13% in the past five years and 31% in the past 10 years
  • more semitrucks on farms, with commercial driver’s licenses and Department of Transportation truck inspections not required
  • distracted drivers
  • bigger equipment
  • older farmers with diminished reflex times
  • much larger monetary awards from jury verdicts

Schwarz says he often hears farmers say, “I’m covered, because I have insurance.” He says that strategy is woefully inadequate.

“I tell them, ‘Yes, but what if you’re insured for $3 million, but you get a judgment against you for $5 million? Or $10 million? You’re only covered up to the limits of your policy, and the rest will come out of your assets.’   

“We live in a litigious society, and it’s getting worse. You need to get your farm ‘defensive.’”

The easiest way to become more “defensive” and decrease your liability is selecting the correct legal structure, Schwarz says. “Today, there are far too many farms that are still sole proprietorships,” he says. “That basically means all your assets are at risk.”

Farming business structure

There are many different legal entities, including partnerships, C corporations, S corporations and limited liability companies. For most situations, Schwarz says an LLC is the way to go.

“That’s what I recommend for farmers 99% of the time,” he says. “They’re easy to maintain, less expensive to set up and give you the most flexibility, and it’s easy to add shareholders.”

In terms of limiting liability, Schwarz explains that putting farm assets — land, machinery, livestock or trucks — into one or more LLCs separates owners from the various companies.

“You’re no longer liable for that company,” he says. “They can no longer come after your personal assets, but only what’s in that company.”

LLCs are also very effective, which is why they’re used by many large corporations, including Pepsi Cola, Sony, Nike, IBM and General Motors. “If it works for the big companies, why won’t it work for farmers like you and I?” he asks.

Schwarz adds that LLCs have other pluses, including long-term care planning, tax benefits, catastrophic incident protection, accessing Farm Service Agency benefits, estate planning and succession planning. Having the farm operation structured in an LLC gives farmers a head start in doing the hard work of getting estate and succession plans in place, he says.

“There’s a real train wreck coming in the next 10 years, with far too many older farmers saying they never intend to retire, and not having any estate or succession plans,” he says. “And I personally think that putting all your kids’ names on a deed is a form of child abuse, because there are no rules and it sets the stage for people to not get along.

“But when you have the farm in an LLC, the operating agreement acts as a rule book, and that makes all the difference in the world.”

Boone writes from Wabash, Ind.

Comments

Post a Comment

Popular posts from this blog

THE ESTATE TAX EXEMPTION REPEAL BOOGEYMAN-VERSION 4.0

Image
    We have reached that time again where the repeal of the federal estate tax exemption boogeyman (the “Repeal Boogeyman”) is being trotted out by many.   This is the fourth time in my 18-year career this has happened.   Before addressing the Repeal Boogeyman more, let us first look at where things stand as to the federal estate tax exemption. Next year, any person with a pulse will be able to shield $13,610,000 from the federal estate tax.   Together, a married couple can shield $27,220,000.   In 2025, this amount will increase until the estate tax D-Day /Armageddon hits on January 1, 2026.   On that date, the exemption amount will revert to $6,800,000 and be “adjusted for inflation”.   With the high rate of inflation we have seen over the past few years, many believe, when adjusted for inflation, the new exclusion amount will be around 7.5 million per person.    Meaning, even if the Repeal Boogeyman has his way, a married couple can...
Read more

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 lo...
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 t...
Read more