Farm Financial Planner: A COVID-19 plan could save the family farm

In a term of illness, a succession plan can provide for farm management

Death may be inevitable, but the new reality of COVID-19 is that it can strike long before the end of a planned retirement. Conventional preparations like having a will and a plan for distribution of farmland and machinery, inventory, and financial assets, such as stocks, bonds and bank accounts, are usually done as distant contingency plans. COVID-19 is much more of an in-your-face, immediate threat. It may be remote, given the low Prairie infection rates, but in some communities, it has spread quickly. A plan for a COVID emergency is just reasonable, says Don Forbes, a certified financial planner who heads Forbes Wealth Management, a Carberry, Man., financial consultancy.

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The basic plan has to address the question of who takes over. Children, spouses or siblings can do it. A backup for the backup might be a professional manager for the farm and a trust officer at a bank or trust company, or perhaps a committee of trustees who agree to serve as the operating executive of the farm for an interim until a manager or family member named in a will or power of attorney can arrive and act.

A draft plan can anticipate what can happen and prevent the worst of all alternatives — appointment of a provincial trustee to run the farm. These trustees tend not to know farming, may be young, untrained, and rush to sell farm assets, even when land prices may be down or the farm itself is not ready for sale.

The very least a farm owner or manager can do is to review and update a will and the power of attorney (PA). The PA should name one or even a chain of managers, define and limit his or her or their powers, define what assets are to be managed, name sources of cash, what bank or credit union, for example, list and name financial obligations such as outstanding mortgages or loans, and name and discuss farm obligations to various associations and lenders.

Life insurance policies should be reviewed, Forbes notes. Conventional term or whole life policies provide cash for defined contingencies such as death and dismemberment, however, mortgage life insurance only indemnifies the lender leaving nothing for a borrower. Where life insurance for the owners of the farm and the farm itself are inadequate for perceived needs, review of cost and coverage is essential.

A separate, stand-alone life policy will be needed for the income needs of the surviving spouse. Needs of minor children should also be reviewed.

If a sibling of the farmer(s) can take over the farm, it is important to consider his or her abilities and experience. If training courses are needed, the farmer can pay for them now or have a fund or account for that purpose.

In reviewing the readiness of a farm or farm family to deal with a sudden death of a manager or the actual owner(s) of the farm, alternative managers can include neighbours informed of a situation now and ready to take over in future on a temporary basis if needed.

When planning a takeover involving any trust or trust company, it is vital to be able to change trustees if needed. Any trust agreement can appoint a bank to act as active trustee with outside, that is, non-bank persons who know the farm family and is able to change trustees without cause. Locking a farm or any asset into the irrevocable control of an outside company is an invitation to high-cost management that is not even bound to make best efforts to run the farm. The outside trustees should include farmers, neighbours or friends of the family.

The drafting of a power of attorney for temporary control of a farm should include a review mechanism, such as an understanding that major changes including sale of land or equipment over some defined value levels be reviewed by an alternate person acting under a power of attorney.

The PA itself should be drafted by a solicitor who has some connection to farming either by family or even location in a farming community. The compensation for the solicitor and what pay those acting under a power of attorney should also be stipulated. Finally, if the person(s) acting under a PA will have many months or years of responsibility, a review process by a family committee can be included in the plan.

A succession plan need not be for death. It can provide for farm management for a term of illness. COVID-19 seems to require months for recovery, after all.

All of this may seem bureaucratic and more paperwork than is really needed. However, epidemics are by their nature unpredictable, and farms, which are rural and isolated from town hospitals and other resources, cannot be left unattended. Livestock, equipment, leases, mortgages and loans cannot be left unattended. The cost of lost access to a farm, seizure of assets by creditors and death of farm animals are tragedies that thoughtful planning and a few hundred or thousand dollars can avert. The old saying that it is better to be safe than sorry is never more appropriate than in a period of an epidemic of unknown duration and severity.

Death comes to all of us, but epidemics can devastate not only active farmers and even their close families, but neighbours and even distant relatives. A plan to cope with the present epidemic is a burden. However, it can prevent an even greater burden — loss of an entire estate — in what could be a not so distant future, Forbes concludes.

About the author

Columnist

Andrew Allentuck’s book, “Cherished Fortune: Build Your Portfolio Like Your Own Business,” written with co-author Benoit Poliquin, was recently published by Dundurn Press.

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