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Insurance is not enough. Select a business structure that provides personal liability protection.

Darrell Boone

May 6, 2020

3 Min Read
John Schwarz II talking at podium
PROTECT THE FARM: John Schwarz II jokingly calls himself “the lawyer with the tractor.” He works to convince farmers why they need to structure their business properly. Darrell Boone

News flash: Personal injury law is big business. There are hordes of personal injury lawyers, like “The Big Rig Lawyer” or “The Hammer,” promising to sue you and win a huge verdict for their clients and themselves. In contrast, lifelong farmer and ag law attorney John Schwarz II, Royal Center, Ind., operates a practice that helps farmers protect themselves in today’s precarious legal climate.

Schwarz says many factors have drastically increased risk and liability. They include:

  • an increase in farm accidents, up 13% in the past five years and 31% in the past 10 years

  • more semitrucks on farms, with commercial driver’s licenses and Department of Transportation truck inspections not required

  • distracted drivers

  • bigger equipment

  • older farmers with diminished reflex times

  • much larger monetary awards from jury verdicts

Schwarz says he often hears farmers say, “I’m covered, because I have insurance.” He says that strategy is woefully inadequate.

“I tell them, ‘Yes, but what if you’re insured for $3 million, but you get a judgment against you for $5 million? Or $10 million? You’re only covered up to the limits of your policy, and the rest will come out of your assets.’   

“We live in a litigious society, and it’s getting worse. You need to get your farm ‘defensive.’”

Related:4 types of LLCs that can benefit farm operations

The easiest way to become more “defensive” and decrease your liability is selecting the correct legal structure, Schwarz says. “Today, there are far too many farms that are still sole proprietorships,” he says. “That basically means all your assets are at risk.”

Farming business structure

There are many different legal entities, including partnerships, C corporations, S corporations and limited liability companies. For most situations, Schwarz says an LLC is the way to go.

“That’s what I recommend for farmers 99% of the time,” he says. “They’re easy to maintain, less expensive to set up and give you the most flexibility, and it’s easy to add shareholders.”

In terms of limiting liability, Schwarz explains that putting farm assets — land, machinery, livestock or trucks — into one or more LLCs separates owners from the various companies.

“You’re no longer liable for that company,” he says. “They can no longer come after your personal assets, but only what’s in that company.”

LLCs are also very effective, which is why they’re used by many large corporations, including Pepsi Cola, Sony, Nike, IBM and General Motors. “If it works for the big companies, why won’t it work for farmers like you and I?” he asks.

Schwarz adds that LLCs have other pluses, including long-term care planning, tax benefits, catastrophic incident protection, accessing Farm Service Agency benefits, estate planning and succession planning. Having the farm operation structured in an LLC gives farmers a head start in doing the hard work of getting estate and succession plans in place, he says.

“There’s a real train wreck coming in the next 10 years, with far too many older farmers saying they never intend to retire, and not having any estate or succession plans,” he says. “And I personally think that putting all your kids’ names on a deed is a form of child abuse, because there are no rules and it sets the stage for people to not get along.

“But when you have the farm in an LLC, the operating agreement acts as a rule book, and that makes all the difference in the world.”

Boone writes from Wabash, Ind.

About the Author(s)

Darrell Boone

Darrell Boone writes from Wabash, Ind.

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