This article is hosted on CAFA’s website but doesn’t load consistently in all browsers so we re-published it here for your convenience.
These days, farming is big business, and with ever increasing farm size come bigger financial risks
In two generations, Alberta’s population has changed from predominantly farm and rural to 80% living in towns and cities. Many farms are still family owned, but as the average farmer is getting older, farm succession or sale planning is becoming more of a priority. Farming has gone from a way of life to today’s large enterprises with significant financial risks, and farmers, especially the younger generation need to adapt to these changes and the required risk management tools. Prior to this, I was in the farm equipment business for 27 years, and saw several clients get into financial difficulty as a consequence of lack of sound planning. I also witnessed the positive outcome from having our own disaster contingency plan in place after the tragic loss of a partner in our farm equipment business.
A hard personal financial lesson
We went through a tough period when he was killed in a plane crash, as bankers and suppliers get nervous about business continuity. Thanks to foresight of our accountant and lawyer, we had a signed buy-sell agreement in place, properly funded with life insurance. A month after applying for the death benefit, we received the full life insurance proceeds, bought back his widow’s shares, reallocated them to the surviving partners. Even the plane was covered, as was listed on our used inventory schedule and if none of this had been in place, we would have been forced to sell everything and close the doors.
Own and control your life and other insurance policies: I had a client who ran a big feedlot with his operating line insured with his bank. His bank changed their insurer so existing clients with more than $100,000 of operating had to answer some medical questions to re-qualify. Unfortunately, just prior to this happening, he was was diagnosed with a life threatening illness, couldn’t answer no to all the questions, resulting in him having to pay down his operating line to the new $100,000 non evidence limit. This proved financially devastating and he eventually ended up selling out, if he or his business had owned the coverage he might still be farming.
Protect yourself against the big risks
We all face risks every day, so need to do proactive planning to cover the negative consequences of these unplanned disasters. The tax free funds from an insurance payout allows for the luxury of choices when bad things happen vs. very limited choices without any funds, which can make a huge different to the outcome. No large sum will ever replace the lost person, but does provide the needed breathing room to make sound decisions, rather than the forced sale of assets for cents on the dollar in a worst case scenario.
Get the paperwork done
I can’t stress enough to farm or small business owners the critical importance of proper financial risk management for themselves, their families, partners or businesses. Without properly completed and signed documents backed up with policies in place, a disaster can financially cripple or bankrupt them. For cents on the dollar, they can ensure themselves, their families or businesses against the catastrophic financial risks that can result from accident, injury, sickness, death, or law suits.
Keep your wills up to date
I see many wills that are 20 or more years out of date, ticking time bombs with the potential to cause very significant financial issues between those left behind.
Image licensed through Shutterstock