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Long-Term Care Costs Threaten Family Farms

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There is a big threat out there to the survival of family farms. No, it’s not taxes. Not anymore. The threat is the potential loss of farms due to uninsured care costs incurred by aging farm owners. 

Like many areas of the country, Central and Northeastern Pennsylvania were largely built on the sweat and perseverance of the owner/operators of small family farms. These farmers epitomize the American values of hard work, running your own business, providing for your family through all kinds of adversity, loving the land, and passing all these virtues along to your children.  

Now, long-term care costs, combined with government’s Medicaid qualification rules and Estate Recovery program, are working to destroy the family farm as the heartbeat of our American economy and our culture.  

Farm Owners are Aging

According to the Federal Government there are 2.2 million farms in America. Most of those farms (87%) are owned and operated by individuals or families. These owners are an aging group.  Among principal farm operators 33% are age 65 and older. (See, USDA 2012 AgCensus).

If we value family farms, we need to do what we can to foster their transition to the next generation. But the aging of our farm owners/operators makes it increasingly unlikely that the small family farm will be allowed to stay in the family.  

Death Taxes on Family Farms have been largely eliminated

Death taxes are not the problem. In recent years, the potential for the imposition of significant federal and state transfer and inheritance taxes has been greatly reduced by changes in the law. The Federal estate tax exclusion amount is $5,340,000 in 2014 and most family farms are well below that threshold.   

And farm land and other agricultural property can be exemped from Pennsylvania’s state inheritance tax if the property stays in the family and a few conditions are met. [For more information about these agricultural exemptions and related requirements, see my earlier post: Pennsylvania eliminates tax on inheritance of family farms if law’s conditions are met.]

Long-Term Care Costs Loom Large for Aging Farmers

While death tax concerns have diminished, many of Pennsylvania’s aging small farm owners are threatened by the specter of uninsured care costs. As people live longer, their care needs tend to grow until they can overwhelm family caregivers. Even if a care-recipient is able to remain at home, supplemental paid care is often needed. And the likelihood grows that the farmer’s modest life savings will be used up paying for that care.

Unlike acute health care needs, the cost of long-term care, whether it is received at home, in assisted living, or in a nursing home, is typically not covered by Medicare or private insurance. It is expensive and can quickly deplete a small farm owners modest financial resources.

When the farm owner’s savings are gone, he or she may qualify for Medicaid help to pay for required care. Medicaid is the safety net program that can pay long-term care costs for needy seniors. But the Medicaid program has rules and limits that can prevent the small farmer from qualifying.

A Trap for Farm Families

If the aging farm owner attempts to transfer the farm to a child, the owner may become ineligible for Medicaid for a period as long as 5 years. In addition, the child (and all of the farmer’s children) may become personally liable for his care costs under filial responsibility laws. [See my earlier post: Children can be liable for a parent’s long term care costs in Pennsylvania.]

But if the aging owner keeps the farm and draws on Medicaid benefits to pay for long-term care, the farm property will be subject to a government Medicaid Estate Recovery claim at death.

For example, take the hypothetical case of Bob, a widower age 75, who owns a small family farm in Lycoming County, Pennsylvania. His son, Sam, has sacrificed and helped his father run the farm for the past 30 years. Bob repeatedly promised Sam that the farm would someday be his. In fulfillment of this promise, In March of 2012, Bob deeded the farm to Sam. 

In 2014, Bob suffers a massive stroke and is confined to a nursing home. His limited Medicare coverage quickly runs out. Over the following two years, Bob pays all of his savings to the nursing home. Then he is out of money and needs to apply for Medicaid, the government program that assists nursing home residents who can no longer pay for their care.  

As a result of federal and state Medicaid regulations, Bob will be ineligible for Medicaid because he gave the farm to his son within the prior five years. 

Sam can give the farm back to his father to undo this penalty. This will allow Bob to qualify for Medicaid payment of his cost of care. But it also means that the farm will be subject to Medicaid Estate Recovery reimbursement when Bob dies.

The Medicaid rules effectively force the farm to be sold either during Bob’s life or after his death. This means that the family farm will be gone and Sam will lose the fruits of his thirty years of hard work. 

Bottom Line: Plan Ahead for Long-Term Care

Our federal and state legislators have acted to protect family farms from death taxes. But they have enacted laws like the Medicaid transfer penalty and estate recovery that effectively impose a “long-term care tax” which can and do force family farms to be sold. This long-term care tax is not going away any time soon. Families need to plan for it.   

The bottom line: For aging farmers who want to keep their farms in their families it’s the cost of long term care rather than death taxes that usually needs be the focus of legal planning.

Expert long-term care planning, especially when implemented more than 5 years before the need for care arises, can help ensure that the farm stays in the family. If you live in Pennsylvania, the lawyers at my law firm, Marshall, Parker and Weber, can guide you through your planning options. Call 1-800-401-4552 for more information.

If you own a farm and are over age 55, the time to plan is now.  

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Children can be liable for a parent’s long term care costs in Pennsylvania