What if Long-term Care is Needed? Financial details to discuss with your farming children

Dear Michael:

We read a recent column you wrote regarding how to protect our farm should we need long-term care and not have enough income to pay for those costs of care as we get older. What are the chances we will need care? What are the details we should be discussing with our children about our care?

What things should we be looking at in their plan to make certain they follow through with our final thoughts?

–Farming With Children

  Dear Farming With Children: First of all, we should take time to say thanks and praise that your life has been fruitful in both family and what you have been able to create in your farm business over your lifetimes. It’s important to note that most non-family owned businesses have a Business Continuation Agreement or document. In this document, it outlines what happens if the principal owner should die, or should become disabled and unable to work, if one of the partners should decide they want to sell their shares at some point in the future, and what would create a dissolution of this business. Other things covered might be Key Person – what to do in the event one of the Key people get hurt and can’t do work or is disabled, or leaves the business or dies and you lose the most valuable asset you have on hand: experience. All of these things are covered in a rather lengthy legal document that encompasses the sphere of the business itself. In family owned businesses, however, very, very few unincorporated or non-LLP or LLC farms have any such agreement. For those who have gone through the process of setting up and LLP or LLC or corporation, the first item your attorney will likely recommend is setting up this paperwork to formalize your business. I would guess over ninety-five percent of family owned farm businesses – although now worth millions of dollars and revenues in the hundreds of thousands – have any such agreement. Worse than this fact is perhaps less than twenty percent of these businesses even have an adequate will or estate plan in place to make certain this business will survive generational transition. It’s been said that the first generation earns the value, the second generation enjoys the value and the third generation loses the value of these businesses. How does a business go from being worth a couple hundred thousand and grow into the millions only to be lost within two generations? Probably from the example set in the first generation. There’s entirely too little communication between the first and second generations – both farming and non-farming – and no comprehensive plan to protect the business from health and long-term care issues, from losing key people and key labor, to how the shares of the business can be bought and sold between the ‘active’ partners and the non-active partners. It seems this generation is content to see ‘how things play out over time’ when the handwriting is already on the wall. Either you’re going to live too long and need some type of very expensive care, or you’re going to split up the business at death and expect the ‘active’ partner to survive this split or both could happen. Larger businesses don’t operate this way – and if they did – much like farming – most wouldn’t make it through the third generation.