Last year, a significant column was written about the repeal of the federal estate tax exemption and the necessary estate and succession planning steps. Since the election, experts have indicated that the estate tax exemption is unlikely to be cut. As a refresher, an individual can currently shield $13,610,000 from the federal estate tax, and a married couple can shield $27,220,000. Pre-election fears were that the current law would sunset in 2026, reducing the shielded amount. Now, the most likely scenario is that the law will be renewed for years, and the exemption will continue to increase. The Repeal Boogeyman has seemingly vanished.

Protecting Farm Operations in a Changing Tax Landscape

Long-Term Healthcare

This expense can have a devastating impact on a farm operation. Many farmers can recall a farm in their community that had to be sold to cover nursing home costs. Medicaid estate recovery often plays a role when a person applies for Medicaid and must spend down their cash assets. Once Medicaid pays for long-term care, it can file a lien against the estate, forcing the sale of assets like land. Surprisingly, many people are unaware of Medicaid's ability to do this. In Indiana, a mandatory report is made for estates of individuals over 55. However, proper planning can make a difference. For instance, holding land in an LLC can limit Medicaid's reach. If the deceased owned less than 50% of the LLC, their shares may have little market value. Many LLC operating agreements also have strict transfer rules. In Indiana, Medicaid Estate Recovery has rarely sought to enforce a lien against an LLC. In most states, an LLC combined with a revocable trust provides a strong defense against Medicaid liens. Studies show that a significant portion of people will need long-term care, but only a small percentage have insurance. The average cost of a nursing home is $10,000 per month, making it crucial for farmers to plan.

Lawsuits and Penalties

Lawsuits and environmental penalties can sink a farm faster than the federal estate tax. For example, a semi-truck accident can lead to a multimillion-dollar lawsuit, and a large fertilizer spill can result in fines and cleanup costs. If a farmer causes harm to a lake and its recreational activities, they may face additional lawsuits. Insurance may not be enough to protect against such liabilities.

Legal Entities

Farmers need to ensure their farms are structured properly to withstand legal challenges. Utilizing legal entities can help a farm operation survive lawsuits. However, it's essential to take steps to prevent a plaintiff's lawyer from "piercing the veil" of the companies. In most states, not maintaining proper company records can open the door to personal liability. Regularly updating minute books and following proper procedures is crucial. Sadly, many people neglect these aspects, leading to a false sense of security.

Wills and Trusts

With the increased value of farm estates, heirs are more likely to contest wills and trusts. Even with a well-thought-out estate plan, one disgruntled heir can cause expensive litigation. Some states allow for "pre-mortem validation," where heirs can contest a will or trust while the person is alive. Having a no-contest clause in a will or trust can discourage such actions. It's important to address these issues to protect the farm estate.Now that the federal estate tax exemption is likely to remain, farmers should focus on the factors that can harm their operations during the slower winter months. These articles provide general information and should not be considered legal advice. Laws vary by state, and specific situations may require professional legal guidance.John J. Schwarz, II, a lifelong farmer and 18-year agricultural law attorney, and Natalie Boocher, an elder law attorney, contributed to this article. They can be reached at 1-844-FARMLAW and www.thefarmlawyer.com. Go to www.farmlegacy.blogspot.com for past articles.