Every farm business faces a host of risks from weather, disease, markets and ever changing ag policies. However, there are five major risks every farm transition plan should consider and develop contingencies to address them. They are the dreaded five D’s: death, disability, divorce and disagreements. Any of the dreaded five D’s can create a situation that can seriously damage or even cause the farm business to fail. It is essential for all farms, and particularly those developing a farm transition plan, to develop plans that will reduce these important risks.
Most farmers are optimistic by nature and sometimes forget that even the best laid plans can and do fail. Discussing and planning for the five D’s is not a pleasant task, but nonetheless it is a task every farm business should address as it establishes goals and makes plans for the future. It is not possible to eliminate these risks, but Michigan State University Extension recommends using proper planning to reduce the likelihood these negative events can impede or even destroy the farm transfer or farm business.
Death: Although not a pleasant thought, we all will eventually die. Furthermore, farming is the single most dangerous occupation in the United States. What would happen to your farm business if the person providing the lion’s share of management and/or labor were to meet with an untimely death? Is a plan in place to pass the assets down to the next generation with the farm still having the ability to operate? Is there someone who is capable of stepping into the shoes of the deceased and providing an adequate level of management and/or labor so the farm business can continue to thrive? Do you protect the farm assets with life insurance or other strategies more suitable to your situation? Regardless of the tactics employed the farm business and transition plan must discuss and plan for this possibility and employ a strategy that will aid the younger generation in gaining control of key farm assets needed to insure success in the case of a premature death of an older family member who owns most of the farm assets. Or what happens if the wrong person dies first?
Disability: Again, farming is a dangerous activity and unfortunately provides many opportunities for disabling injuries. Also, as family members grow older they may be affected by illnesses that prevent or limit their ability to function as a productive member of the farm management team. Disability or income continuation insurance can provide the dollars to cover some of the expenses during a fixed period of disability. Make sure your policy is not one that has limits on the total dollars or length of time they will cover. Even though such insurance is a good strategy, the first line of defense should focus on prevention. Every aspect of the farming operation should be scrutinized to identify potential safety and/or health problems. Don’t hesitate to spend some dollars to hire safety experts who can often see hazards you fail to identify. Provide regular safety training for all farm family members and employees. Don’t make the mistake of assuming your farmstead is safe and/or that everyone understands safety procedures. When it comes to farm accidents it is often easy to think “it will never happen to me.” Don’t allow yourself, your farm family members or your employees to ever take safety for granted.