20 Jul Risk Management
Have you thought about what would happen to your farm business and family if you die or become incapacitated? Would the farming operation be sustainable without you? Would the business need to be sold to repay your debts? Would there be adequate income to support your children?
These issues may seem distant compared with the daily demands of farming. It is easy to be caught up in the trenches, leaving little time to think about the important things in life. But ultimately the goal is to grow the business to the point where it can support you and your family and allow you to have the quality of life you deserve in retirement. Part of this is protecting you against the unexpected.
If your family and farm business are your top priorities, you will have thought about this already. You will have implemented a risk management plan to ensure that your family and farm will be properly looked after in the event that you die or become incapacitated.
Not sure if you have an adequate risk management plan? Ask yourself these questions:
- Can the farm business continue to operate without me if I die or become temporarily or permanently incapacitated?
- Would my family and I have adequate financial support if I could no longer work?
- Who would look after me and would there be adequate financial support to do so?
- What would happen if the farm’s key person dies or becomes incapacitated?
If you are uncertain about any of these questions, you need to prepare your risk management plan.
There are some basic things that you can put in place to ensure that you, your family and the farm business are protected in the event of an unexpected event:
This may be obvious but, as crucial as it is to have insurance in place, many people underestimate the value of having the right insurance package. Your insurance package should be comprehensive to cover all aspects of your farming business:
(a) Asset protection – in case of an unexpected event
(b) Business protection – to mitigate the impact of, for example, loss of key personnel
(c) Income protection – in case you are temporarily or permanently unable to work
(d) Life insurance – to provide financial support to your family should you die
If you don’t think you have the right insurance in place or think you are spending too much and not getting the most out of your insurance or your ACC structure, we can help you with this issue.
- Powers of Attorney
There are two types of powers of attorney:
(a) A power of attorney for your personal care and welfare
This allows you to appoint a person to be responsible to make decisions in relation to your care, should you become mentally incapacitated.
(b) A power of attorney for your property
This allows you to appoint a person to be responsible for your personal financial matters.
Appointing an attorney will provide you with the peace of mind that, should something happen to you, both you and your farm business will be in safe hands.
- A Will
The will sets out who will receive your assets on your death. For example, you may wish a person to hold your assets on trust for your children or future children until they reach the age of 25 years.
Many farmers also use a trust to provide financial support to successive generations. You can transfer assets to the trust in your lifetime and/or in your will. The trustees can use those assets to provide ongoing support to you and your family. The trust can also be a crucial part of your succession plan.
- The right ownership structure
Even if you are just getting your foot on the farming ladder, it is vital to think ahead and get the right ownership structure in place now to avoid complex and costly changes down the track.
Are you trading as a company, partnership or trading trust? Do you know the legal, tax and practical implications of your ownership structure? There are costs and benefits of each and there is no “one size fits all” structure. However, getting the right structure in place is crucial for ensuring your business survives beyond you and can support your family through successive generations.
Implementing these four things will protect you and your family against unexpected events and will reduce the risk of succession failure. Once you have properly implemented your plan, you can stop worrying about what will happen to your family and farming business in the future so that you can focus on enjoying the present.
At BlackmanSpargo, we work alongside you, your accountant, and insurance adviser to help you get the right legal structures in place to suit your needs and achieve your goals