Dear Michael: We have one child who is farming and two others who are not. We’ve been gradually turning over rented land and machinery to our farming child while putting money in savings for our other children. We do have long-term care insurance that we bought it back in the nineties so we’re covered for long-term care. What other things should we be thinking about? – Got It Covered.
Dear Got It Covered – You’ve done a nice job on your transition with your farming child. Too many people wait and hold on to assets far too long not allowing the next generation to get a foothold in farming.
You now have to decide when you and you’re farming child switch caps – where s/he is the farming manager and you become the hired help or junior partner in the operation. For some people, this is an easy task to turn over the major decisions of the farm. For other people, control is a hard, hard thing to let go of.
Maybe it’s good to set a date, a year in the future when you decide this is the year to let this occur. Your farming child should be informed of your decision as to the date and what his or her responsibilities will be then. For example, who borrows the money to farm, what the plantings are going to be, how many head of livestock, etc. and then work towards this date together.
If it seems like your farming child is a little slow on the uptake, remember they’ve had years of practice listening to you and depending on you. But now it’s time to push them out of the nest and see if they can fly.
You also mentioned that you purchased long-term care in the nineties and that you are covered for long-term care. I’ve heard this many a time. “I’ve got long-term care insurance so we don’t need to worry about that!”
When someone says they bought insurance in the nineties, I would bet a hundred dollars that this is what you are insured for – one hundred dollars a day. Everyone bought insurance based on the costs at the time and during the eighties, people bought eighty dollar a day insurance, nineties one hundred dollar a day and in the last decade perhaps two hundred dollars per day.
To be sure you have sufficient coverage, use the average cost of care in North Dakota per North Dakotan receiving long-term care – that average being about eighty-six hundred dollars per month or just under three hundred dollars per day and just over one hundred thousand dollars per year.
If you’re insured for one hundred dollars per day, you have three thousand dollars per month. Add to this your income – Social Security, land rents, and any other income. Remember, if one of you requires care and the other doesn’t, the cost of living for the one out does not drop significantly. He or she will still need to pay for electricity, food, land taxes, etc.
Also, don’t assume Dad won’t end up needing care. With health care getting better, men are now living long enough to require care eventually. They used to only constitute twenty percent of people needing care – now they’ve jumped up to almost forty-three percent. People are just taking a lot longer to die – both male and female.
In your scenario, you’re about fifty thousand dollars per year short from hitting ‘average costs of care.’ You would then take the nest egg you’ve set aside for the other children and divide it by your annual shortage to determine how long your nest egg will last. That’s what you are truly insured for.
Of course, that does mean the kids off the farm will slowly watch their inheritance disappear if you take a long time in care status – whether that’s home care, long-term care or assisted care. That creates a big problem for your farming child someday when s/he has to explain how their inheritance got used while his is still intact – unless you didn’t have a cash sum sitting aside. Then the land would be used too!
“Keeping the Family Farm in the Family”
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