A well thought out formal plan for transferring the ownership of
a family farm sets out how you will do it on your terms.
However, what happens in the case of premature death or a severe
disability that incapacitates you and you are no longer capable of
making decisions? Premature death or a permanent disability can
derail your plans for an orderly transition of your farm. If
this happens, do you have a contingency plan in place that will
ensure the people you care about most will be looked after?
Death or permanent disability while running a business, if it is
not planned for, can quickly destroy it. This event can leave
your family in a position where they have to wrestle with many
personal and business issues with little or no guidance if there is
The first step in developing a contingency plan is to
provide written instructions to your family as to what should
happen if you are unable to be active in your farm business.
Who should run the farm? Whether the farm should be sold and, if
so, who the purchaser(s) may be? Who are the key advisors the
family should turn to in order to assist with the transition of the
farm and other estate matters? You need to provide your
contingency plan to your key advisors to keep them apprised and
solicit their feedback. Normally the farm is the most
important asset of farm owners. Its protection is likely key
to ensuring the family will be looked after.
What are the risks to the farm operation if there is no
contingency plan? If you are no longer on the scene, the
farm’s lenders may get nervous and restrict access to new
loans or even demand repayment of existing loans. If you have
a contingency plan, it will go a long way in giving your lenders
comfort that their asset is not at risk. If no one is given
the authority to make decisions, confusion could possibly rule the
day leading to managerial mistakes and key people leaving.
Family members may start pursuing their own agenda which will
likely not be in the best interest of the long term viability of
the farm business. The farm needs to be able to respond
quickly. This will be difficult if there is no contingency
One big risk arising from the premature death or disability of
the farm owner could be the loss of knowledge and skills critical
to the farm’s success. This is one very important
reason why you should be working towards making yourself
expendable. A number of farm owners do not like this concept,
but it can be essential if you are going to have a sustainable farm
operation. You need to be transitioning knowledge on a
regular basis and making sure that your farm business has access to
the skills you bring to the table if you are not there.
Document what you do and how you do it. Train and educate
family members and/or employees so they can step into your
shoes. Not only will this facilitate your exit from the farm
business, but it will also make life easier for you while you are
active in the farm.
Insurance can play many roles in any contingency plan.
Life and disability Insurance can be used to ensure the
family’s financial needs are looked after in the case of your
premature death or permanent disability. Key man insurance
can be purchased on the life of the owner that would pay a death
benefit to the farm. This money can be used to provide
breathing space to allow the operation to adapt to new management
or sell the farm, provide extra funds to pay bonuses to key people
to encourage them to stay, etc. If you have partners or other
shareholders, insurance can provide funds to purchase the interest
of a deceased shareholder/partner leading to a much less stressful
transition of ownership. If this purchase is not funded, the
family may be left waiting for the money possibly leading to
Preparing a contingency plan detailing what should happen if you
are not there should be a key component in developing a plan to
exit your farm business. Planning brings clarity, gives
you more control over your future, enhances the chances that you
will achieve your business and personal goals, and reduces anxiety
for the people you care about most.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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