As we head into fall and winter, it is a time when farmers and ranchers can turn their attention to matters that have been put aside during the busy spring and summer months. One of those matters is the family’s estate planning and succession planning. In working with farmers and ranchers on estate planning, one of the areas that must be addressed is the impact of planning decisions on farm program payments. Failure to take these rules into consideration when creating a plan can result in adverse and unintended consequences.
Farm programs have a maximum per person dollar amount that can be received annually, either directly or indirectly, by each person or legal entity. For example, Conservation Reserve Program (CRP) payments are limited to $50,000 per person or $100,000 for land owned jointly by a husband and wife. The problem arises when a couple desires to use a trust or another entity to own or run the property. Take the example of Bob and Sue who own a parcel of land that is potentially eligible for $80,000 in CRP program payments. If the land is owned solely in Bob’s name, they will only receive $50,000 in CRP payments. However, if the land is titled in both of their names, they will receive the full $80,000 in CRP payments. If the land is transferred to a limited liability company (LLC) owned by Bob and Sue, this will again result in them only receiving $50,000 in CRP payments. The same can potentially happen if the land is owned in a joint trust. While there are ways to plan around these limitations, failing to take them into consideration can be costly. There are other limitations such as income limitations, and the requirement that the individual or entity be actively engaged in farming.
If you are a farmer or rancher who benefits from farm program payments, it is vital that you inform your advisors of the same. It is also important to use qualified advisors to assist you with planning for your farm or ranch. You will want to know that these individuals understand the impact of your estate planning choices on your farm program participation.
If you or someone you know is interested in learning more about these and other issues that are unique to the estate planning and succession planning for farmers and ranchers, consider attending one of our upcoming Lunch and Learn Workshops for farmers and ranchers. You can find out more details here.