T
he Trump administration’s expected overhaul of health care insurance can’t come soon enough for
many families, whether you live on a ranch outside of Dumas or in a Dallas suburb. From Brownsville to Booker in the northern Panhandle, the Affordable Care Act hasn’t lived up to its name. And for 2017, most call it “unaffordable.” Policies that cost about $1,000 per month for a fam-
ily of 4 — with a $6,000 deductible — are common. Other policies might top $20,000 per year, with the same deductible. Bluntly, that dog won’t hunt for most. And like anything in government, the overhaul will likely come one part at a time. But for ranch and farm families, there are options
that can help them reduce that health insurance bur- den and provide additional fi nancial benefi ts. It may be worth investigating whether incorporating your ranch or forming a partnership can open the door to group health insurance, as well as potential tax benefi ts. “When many insurance carriers pulled out of the
market because of astronomical losses, many self- employed people and families looked into forming a group policy to lower their health insurance costs,” says Charla Rose, benefi t advisor for Upshaw Insurance in Amarillo and Dallas.
Expertise from a family lawyer or other legal
counsel is likely needed to determine if forming a partnership or limited liability company (LLC), or
incorporating the farm or ranch, is the best route to go for a particular situation.
“A rule was established that in order to qualify for
group insurance, there had to be at least 2 employees, and 1 employee could not be a member of the immedi- ate family. That opens the door to a family forming a partnership or other business entity.” “A husband and wife can be considered a group if
a limited partnership or general partnership is estab- lished,” says Michele Woodham, Cattle Raisers Insurance executive director, Fort Worth. Cattle Raisers Insurance (CRI) is the in-house insurance agency for Texas and Southwestern Cattle Raisers Association (TSCRA). Jack Howell, attorney with Sprouse, Shrader, Smith
PLLC law fi rm, which has offi ces in Austin, Victoria, Amarillo and Tulsa, specializes in tax law and other business fi nancial situations. Among his clients are various ranches, farms and feedyards. He says legal entities such as privately held businesses or individual families can face a multitude of complex issues sur-
tscra.org #CattleRaisers
rounding their structure, operation, transaction and succession. “Many involve liability issues that can face ranch-
ers and their families,” Howell says. “A family limited partnership (FLP) may be an option to help protect families. A limited partnership should be specially designed for members of a family to own land and other assets. The design features a family or its estate planning legal counsel uses, or does not use, depends on the family’s particular situation.” Expertise from a family lawyer or other legal counsel
is likely needed to determine if forming a partnership or limited liability company (LLC), or incorporating the farm or ranch, is the best route to go for a particu- lar situation. The type of entity needed will vary for many situations.
Benefi ts of a limited partnership For many, forming a limited partnership (LP) for
tax purposes and other benefi ts, such as health insur- ance, is the preferred entity. In an LP, there is what’s often called a “Welfare
Benefi ts” provision. “Welfare benefi ts encompass all benefi ts an employer may provide other than pension benefi ts,” Howell says. Health insurance is a key component. “An employ-
er may provide its employees with health insurance benefi ts in a tax favorable manner,” Howell says. “In effect, 100 percent of the premiums get deducted and employees include no amounts in their taxable income.” To take it further, if the employer complies with cer-
tain non-discrimination rules, Howell says that being an LP means it can not only provide health insurance to employees, but also pay all of its employees’ medi- cal expenses, taking a deduction for amounts it spends with no inclusion in the employees’ taxable income. In addition, as an LP, disability insurance may be
provided by a rancher or any employer on the same basis as medical insurance. “The employer can also provide group term-life insurance, split-dollar coverage and other forms of insurance and death benefi ts in a tax favorable manner,” Howell explains.
Incorporation? One design feature that is common to all FLPs and
most limited partnerships is the use of a limited li- ability entity as the general partner. “There are many reasons for this, primarily involving liability and con- trol issues,” Howell says. “The general partner can be a corporation or a LLC.” ➤
January 2017 The Cattleman 85
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