Proposed Farm Bill has change that should make it easier for families to have succession plan for farm and not lose program payments
H.R. 2, AGRICULTURE AND NUTRITION ACT OF 2018
The 2018 Farm Bill: Progress for Farm Succession Planning
This article is for educational purposes only. The information contained in this post is NOT intended to be legal advice for any particular viewer. Reading or retaining this post does NOT create an attorney-client relationship. Readers are encouraged to see a licensed attorney to discuss their legal needs. The information provided in this post is based upon laws of the United States of America and the (Great/Lone Star) State of Texas.
The pending “Farm Bill” does a lot – but one change regarding program payments will make it easier for families to create a succession plan for the family farm.
The Agriculture and Nutrition Act – also called the “Farm Bill” – is passed by Congress periodically and affects various federal programs from crop subsidies and disaster insurance to nutrition programs, scholarships, and research grants. The Bill also determines which producers (anyone who works in agriculture) qualify for those programs.
What I call “the disappearing farm effect” has been plaguing the United States for decades. The average age of farmers and ranchers has been steadily increasing and fewer family farms are surviving from one generation to the next.
Few producers have an estate or succession plan in place and those who do had to spend a significant amount of time and energy not only to establish the plan, but also to maintain it. Most producers want a simple plan, but generally that’s not an option.
Estate planning tailored to producers – sometimes called agriculture succession planning – tends to involve more complicated and intricate strategies than a typical estate plan. One reason is many producers are directly affected by the provisions of the current Farm Bill and its regulatory counterparts.
Using business entities, such as LLCs or corporations, can be a viable option for a person who wishes to pass the family business down to his or her heirs. However, in many instances this can hurt a producer due to those current regulations regarding “look-through entities” for purposes of federal agricultural programs.
The amount of certain types of funding and relief a producer can receive from federal programs is capped. If multiple members of a family farm are grouped together in a single LLC or corporation, then the farm as a whole will be treated as one “individual” or “entity.” So they will only be eligible for a single payment whereas if they were not in an LLC or corporation they potentially could have been eligible for one payment per “actively engaged” member of the farm.
But an LLC or corporation is important for agriculture succession planning. So farmers are between a rock and a hard place. A producer who wishes to proactively ensure inheritance of the family farm for his or her heirs, yet still remain eligible for participation in Farm Bill-related programs, must spend time and money with an attorney to craft a web of entities – partnerships, LLCs, corporations, etc.
Part of the 2018 Farm Bill could make it easier for families to create a succession plan for the family farm. In particular, the current version of the Bill includes a definition for a “qualified pass-through entity” which would allow producers to utilize business entity structures available to many others regarding estate planning and the passage of a family business or its related assets. The current language reads as follows:
QUALIFIED PASS-THROUGH ENTITY — The term “qualified pass through entity” means a partnership (within the meaning of subchapter K of chapter 1 of the Internal Revenue Code of 1986 and including a limited liability company that does not affirmatively elect to be treated as a corporation), an S corporation (as defined in section 1361 of such Code), or a joint venture.’
This language would greatly simplify the estate-planning structure of an agriculture succession plan, and hopefully end the “disappearing farm effect” by helping to keep the farm in the family. Other regulatory and administrative changes would be necessary to fully implement the potential benefits of this provision, but it is certainly a step in the right direction.
For more information regarding the Farm Bill, the House Agriculture Committee has launched a website at the following URL: https://agriculture.house.gov/farmbill/.
Author: Garrett Couts