Preserve Farm Program Payments When Planning for Succession

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Post authored by
Jim Rein

Jim Rein

Jim Rein designs sophisticated estate plans for independent, forward-thinking business owners who seek to transform what they've built into a legacy that lives on. Whether their focus lies in farming, ranching, equipment manufacturing, healthcare, or commercial real estate, Jim draws on his 19 years of experience to proactively devise the best scenarios for achieving people's goals for the preservation and distribution of their wealth.
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With razor-thin profit margins, it’s more important than ever to maximize farm income from all sources. When planning for the succession of ownership of your farm, one of the most commonly overlooked parts of the process is farm program payments. Without the proper structure and forethought, payment limits can be reduced or lost altogether. Or worse yet, the wrong structure can result in a Farm Service Agency (FSA) audit that leads to forfeiture of rights and reparations.

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The ideal succession planning structure is one which maximizes payment potential (or at least maintains current levels) and avoids an adverse FSA audit. This is accomplished through proper entity structuring, FSA-compliant distribution of roles and responsibilities, and a clear understanding of FSA rules and local office interpretation.

One tricky thing about succession planning, tax consequences, and FSA directives is finding the common ground between them. The good news is, it exists. You just need the right team of people who can tackle the problem from all angles, including farm programs, or risk leaving money on the table.

We recently worked with a family who owns and operates a hog and row-crop operation. The parents had already done some succession and estate planning work that included setting up trusts for the couple’s two sons as beneficiaries, both of which are heavily involved in the operations. But while mom and dad were receiving full limits under FSA, the sons were receiving very small payments. Now they were seeking to wrap up their succession and estate planning, and were sensitive to the impact on farm program payments. When they came to K·Coe Isom, we examined the trusts, their current entity structure, ownership distribution, and division of responsibilities.

We consulted with the K·Coe Isom farm program services team. What we found was that while the sons’ roles and responsibilities were consistent with FSA rules for receiving payments, their level of ownership was not sufficient to maximize their payment limits. We were able to create a plan to increase the ownership for the sons using the structures that were already in place, which allowed the family to fully maximize their FSA payment potential

The beauty of this plan is that it maximizes farm program payments while meeting succession and estate planning goals, and mitigating liability.

When considered as an integral part of the operation, farm program payments become a natural component of succession planning. In succession planning, we are concerned with who’s who and what they do. We identify skill sets and strengths of each participant and how they fit with all areas of the operation: labor, management, land, equipment. Then we delineate ownership of those areas. We overlay the different areas to identify gaps and make sure the structure meets the family’s goals. Farm program payments are another layer of analysis in that process that can’t be ignored. In fact, with the right planning and preparation, producers with a medium- to long-term view of succession can maximize return from this important component of farm income.

The bottom line is that there is no one-size-fits-all approach to succession planning, particularly when it comes to dealing with farm program payments. Every situation is different, and it takes the right team of specialists to achieve the best outcome.

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