After LLC or trust documents are prepared and filed (for LLCs), there are certain, additional key steps that must be taken if the LLC or trust will be involved in almost any aspect of agriculture.
Many of those steps are the same as if the LLC or trust was not agriculture related. However, a slight transition-related mistake in non-agriculture LLCs or trusts may be more forgivable as a matter of law and practicality than a mistake associated with an agriculture related LLC or trust.
And, in this context, being involved in agriculture includes being an owner-operator, a landlord, a silent investor or even the owner of an entity that owns another entity.
Establishing an LLC or trust without taking those key steps is like trying to use a tractor without having turned on the PTO or hydraulics. Omitting the key steps can be fatal to the LLC or trust’s operation and can eliminate participation in several important government programs like ARC and the USDA’s Marketing Facilitation Program.
Some law firms who help establish trusts and LLCs also undertake the key steps for agriculture related LLCs and trusts. However, do not presume that the key steps are being undertaken by your lawyer unless you are explicitly told that the key steps are being undertaken.
First, it is crucial to ensure that all aspects of LLC or trust transition will be completed (and communicated to and understood by the USDA) in their entireties before or after Sept. 30 of any specific year, due to Sept. 30 marking the change in federal fiscal years. Transitions in using LLCs and trusts can and do take several months, but if the transition straddles a federal fiscal year, such straddling is practically disqualifying for many government programs.
Second, assets (personal property, real estate, etc.) must be funded into the trust or LLC. For personal property, that funding is usually undertaken through bills of sale or certificates of title (like a vehicle title). For real estate, the funding is usually effectuated through deeds. And, notably, in Ohio, the new owner (LLC or trustees of a trust) of real estate will must re-apply for CAUV.
Third, every trust and LLC involved in agriculture must have its own tax identification number (TIN) to participate in government programs through the USDA. That TIN along with all LLC or trust paperwork must be provided to the local FSA office and applicable crop insurance contact. Further, the TIN and documents must be approved (confirmed for consistency/accuracy and completeness) by the local FSA office. Additionally, the local FSA office staff will need to literally understand how all people, LLCs and trusts will function, including the flow of money (i.e. rent) and what individuals or entities will play what roles in the business and operation of the farm.
Fourth, the entire operation must be literally managed consistently with the anticipated plan and roles of the people, LLCs or trusts. FSA, IRS, Social Security Administration, crop insurance and the Farm Credit System are authorized to share a great deal information. Proper setup and use of an LLC or trust must be reflected through consistency in the records reported to each of these groups.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.