The senior generation of a farming operation is increasingly concerned about the farm assets being drained to pay for an extended nursing home stay. One strategy to protect assets from being liquidated and then used to pay nursing home expenses has been to give away those assets to the younger generation. Not so long ago, those assets had to be given away at least 3 years before Medicaid application, else Medicaid eligibility or payment would be negatively impacted. After that, if assets were in a trust the look back period was 5 years but the original 3 years applied if not in a trust. However, now the lookback period for all assets, whether in a trust or not, is 5 years.

With assets in and not in a trust treated the same, first impression may favor trusts. However, if “strings” are attached to assets in a trust, those assets are considered to still be owned by those at the end of the string. That means the original owner can not be a trustee, have any legal ability to access assets or “pull them back” anytime in the future, can not be the beneficiary, can not sign checks for the trust, thus the trust must be irrevocable. Further, when the trust is funded a gift has been made and a gift tax form most likely needs to be submitted.

Medaid eligibility, lookback and asset recoupage is administered locally by the local Job and Family Services office. The Medicaid booklet, “Transfer of Resources, How Transferring Resources Affects Long-Term Care Medicaid” is available at the local Job and Family Services office and on the web at the Medicaid website at:
http://www.odjfs.state.oh.us/forms/file.asp?id=51622

Another resource is the “Ohio State University Extension Basic Estate Planning Fact Sheet Series”, which includes a fact sheet on the “Nursing Home Dilemma”. All the 12 fact sheets can be obtained at:
http://hocking.osu.edu/agriculture-natural-resources/estate-planning/basic-estate-planning

The Nursing Home fact sheet also discusses where Medicare and Medicaid pay nursing home bills, Medicaid income and assets allowed for eligibility and payment and the feasibility and cost of nursing home insurance. If considering nursing home insurance refer to the Ohio Department of Insurance’s “Ohio Shopper’s Guide to Long-Term Care Insurance” at:
http://www.ohioinsurance.gov/consumserv/ocs/completeguides/complete_guide_ltcare.pdf

2009 will be very challenging for the dairy industry. Focused management of production, financial and human resources has never been more critical. Studying management and how it applies to the dairy business is an investment in both the present and the future. New and experienced managers are invited to participate in this workshop where we will:

-Explore risks and management strategies associated with production, financial, and human resources.

-Develop a greater understanding of financial records, analysis, and bench-marking.

-Explore options for managing costs.

-Calculate your cost of production.

The workshop is limited to 25 participants to allow for lively discussion of how management theory is practically applied to both day-to-day and long range dairy farm management. Interested participants will also have an opportunity to complete an intensive analysis of their dairy business following the workshop. The registration form will be posted at http://dairy.osu.edu/. For additional information, contact Dianne Shoemaker at shoemaker.3@osu.edu.

In farm businesses, managers have to be both the general manager and the production manager. Since general managers are responsible for the overall financial health of the business, they need to focus on tracking those things in the business that lead to success – just as the Chief Financial Officer of a large corporation. There are three key financial performance measures for the CFO.

The first is profitability. Is the business profitable? Return on Assets (ROA) and Return on Equity (ROE) will be the most common measures to use. ROA measures returns to all farm capital. Farm capital excludes all of the farm owner’s personal assets. Typically, ROA will average above 9 percent on the best-managed farms. ROE measures the rate of return on a farmer’s own equity capital (net worth). From this perspective, the investment in a farm is just another asset in a farmer’s investment portfolio. ROE is an indicator of the performance of the debt capital component of a farm’s capital structure. ROE should be greater than ROA on a farm where debt capital is being used productively. Profit margin is the margin on sales available to compensate debt and equity capital. Asset turnover measures the dollars of gross sales or income generated each year ratioed to the total dollars invested as assets. Leverage refers to the amount of debt in the business.

Size is the second performance area. Is the business big enough? A couple key measures are the breakeven volume – that point at which enough revenue has been generated to cover costs. Viability is another aspect to consider. First, do returns from the business provide enough income to support the living expenses of the operators? Second, is the production of the business high enough to overcome market barriers to access? An example of this would a dairy farm in which the dairy cannot sell its high quality milk to the processor unless they are able to meet a certain minimum volume requirement.

The third area is growth. Can, and should, the business grow? Part of this is answered by the size discussion. The rest depends on the managerial capacity of the manager and the organization, and the availability of financial resources. As a business grows the leader of the business must acquire the skills of a general manager, and, at some point, they need to put down their production manager hat. A business can grow only with equity or debt based capital. And the amount of debt available depends on the equity. The rate of equity accumulation influences the growth rate. Equity can be accumulated only by making money (profitability) and saving money (retained earnings).

Framing Your Financial Picture is an OSU Extension program that explores these performance areas and helps farms measure them on their farm. This program will be held February 17, 2009 at 7:00 PM at Northwest State Community College, near Archbold, OH. Registration material can be found at http://defiance.osu.edu

Purdue Extension, Strategic Business Planning for Commercial Producers, was used in the development of this article with additional resources available at: http://www.agecon.purdue.edu/extension/sbpcp/