It’s hard to argue with the old saying, “for every problem, there is a solution.”
In tackling some of the unexpected pitfalls of farm life, it helps if the right fix is in place well before something bad happens, especially to a key family member.
In a presentation entitled, “get your ducks in a row,” held last week at the Manitoba Farm Women’s Conference in Brandon, various personal risk management strategies were discussed by a panel of three speakers from local financial services and insurance businesses.
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Shawn Taylor cited an often-overlooked answer to the question of how to divide up the farm among siblings, which typically involves one who wants to take over the operation, and the others who want to get their share in the form of cash.
“How do we keep things equitable and fair for the kids that leave the farm? In a lot of cases, you can’t just give the farm to the one person,” said Taylor.
“And in a lot of cases, you can’t just split it up.”
If the child who takes over the farm has to remortgage the entire property to pay off the others who have no interest in farming, cash flow might become so restricted that the operation is rendered nonviable.
However, having a life insurance policy in place for the key operator, typically the father, which is large enough to cover the expected shares of the siblings, can prevent family disputes over succession planning, he said.
“If Dad passes away, I get the farm, which is what I wanted all along. They get the life insurance, which is their value out of the farm and what they really want,” he said.
Michele Kvern, a long-term care insurance specialist, said that getting hurt or falling ill and needing care can quickly annihilate a retirement fund because hiring someone to look after a family member in a rural setting, even for just one hour a day, can be expensive.
Traditionally, at least one child could be counted on to look after an invalid parent or sibling. Nowadays, however, the children might be scattered all over Canada.
“You can either spend down your assets, or have an insurance plan in place,” she said, adding that hiring a personal care nurse might cost $40 to $65 an hour.
Disability insurance often doesn’t work for farmers because for it to pay out, they have to cease all work on the farm.
“What would it take for some of these men to not get in their combine, or to not drag themselves into the barn? So, disability can be very difficult in some cases,” she said.
“Long-term care insurance, on the other hand, is not based on your occupation. You can be on claim, receiving your tax-free cash and doing with it what you wish, while still overseeing and operating your farm.”
The new tax-free savings accounts to be introduced in January 2009 offer a good way to sock away money that won’t suffer a hefty tax hit when the cash needs to be withdrawn in the future, said Shawna Jackson.
Separate from the Registered Retirement Savings Plan limits, the new accounts allow up to $5,000 per person per year to be deposited, and like RRSPs, unused portions in one year can be carried forward into future years.
Withdrawals don’t affect Old Age Security or Child Tax Benefit payouts, she added, so the money saved can be used for an emergency fund, vacations or to supplement future retirement income.
“It basically allows you to earn tax-free investment income. Anyone can contribute, even those who don’t have an income,” said Jackson.
“This will be probably the single most important thing since RRSPs were introduced a number of years ago.”
