Succession planning with buy-sell agreements

George and Deborah Martin own the farmland in an LLC and have a separate LLC for the operations side of the business.

George and Deborah have four children, but Tom is the only child who currently works on the farm.

Deborah and George want the farm to continue its success long into the future, even after they pass. For this to happen, they believe that Tom should have total ownership of the farming operation. But they would like each non-active child to receive a fair distribution of the estate.

Possible solution if George predeceases Deborah

Operations LLC: Tom sets up a one-way buy-sell agreement funded with a permanent life insurance policy on George for 100% of the LLC’s value. At the time of George’s death, Tom uses the life insurance proceeds to buy the shares of the LLC from George’s estate. Deborah could then use some or all of those funds to:

  • Have an income stream
  • Purchase an annuity
  • Place the proceeds in a trust for the non-active children

Farmland LLC: To ensure Deborah is taken care of, Tom’s operations LLC would rent the farm ground from Deborah’s land LLC using a long-term lease, which will provide her with an income stream. Upon her death, Tom could be gifted the land and have total control of the farm.

Estate planning for farmers’ long-term care needs

Ted and Barb Smith’s 1,200-acre farm is worth $4.5 million.

Soon after Ted’s death, sons Leo and Rich become concerned that the cost of long-term care could compromise the farm’s ability to remain viable, forcing the sale of acreage needed for production.

Their father’s biggest goal was to provide for his family, specifically his wife’s potential care needs, as Ted and Barb had recent deals with a family member’s care.

A possible long-term care solution

The need to protect the farm from long-term care risks is critical. To mitigate this risk, Barb could purchase a standalone long-term care policy with an indemnity style benefit, such as Nationwide YourLife CareMattersSM.

By repositioning $100,000 of her assets to pay the premium on a CareMatters policy, Barb will receive a long-term care benefit of $409,580. This will provide Barb with a monthly benefit of $5,688 for six years, allowing her to get the care she needs. Also, if Barb were to use all of her long-term care benefits, her children would still receive $27,305 as a guaranteed death benefit.

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