Christy Powell is an agriculture and business growth educator based in Lehigh County, PA. She works with varied farms and farmers ranging from brand new to transitioning farmers and speaks with authority by referencing the six generations of her family’s farm, “where we raise, grow and harvest livestock and crops.”
“The key to making your farm transition plan work is communicating with all who need to be involved at an adequate frequency for farm transition planning,” said Powell. “Everyone should have goals that align with a proper exit strategy.” Three vital questions to ask to begin this journey include: Where is the farm or the business now? Where do you and others involved want to be? How do you get there?
Begin by asking yourself “What is my overall exit strategy?” The main concern is whether or not you want to be involved with this process. If you’re of a younger generation or an older one, just being a part of the process is very important. The key to making your farm transition plan work is communicating with all who need to be involved to plan and execute those goals.
“If you have any professional relationships, it might be obvious to start with the people you’re already working with,” Powell said. “It might also be a good time to look for new professionals who can provide a fresh look at what’s going on.”
Why does insurance matter? It’s risk management – and a financial safety tool. “Managing risk is the key to vitality and survival,” Powell said. “Having insurance can help you, your business, your employees and anyone else involved be financially covered with relevant policies that can be claimed during unexpected events. You never know when something unexpected in life is going to happen throughout your business or life process.”
The financial strength of the policy matters too. Can the amount cover all your claims? For agency models and values, do they have an agricultural focus and/or a basic understanding? Do they value your time and work to address your overall needs? Does your policy offer enough protection for your specific needs? Consider the deductible or the amount of money that should be paid and what happens in the event of accidents or natural disasters. Is there enough liability coverage?
There are multiple types of ag insurance: Business property, liability, auto, crop and umbrella coverage. Adequate insurance coverage is needed to ensure the business is viable for transitioning to the next generation. That is the ultimate consideration here.
“Recordkeeping in any business is important, especially when it comes to insurance,” Powell said. “Natural or man-made disasters like fire, lightning, wind, hail, frost, property damage by others – all have a cost value associated with them. General liability of a farm owner’s policy coverage can also include people’s injuries and medical bills for accidents.”
Pennsylvania agritourism has Act 27 to help with limited civil liabilities as long as proper signage and ticketing is done, but it’s not completely exclusive to agritourism activities.
Justin Marinkov has been with the Kathy Barry Agency since 1992; he grew up farming, being the fourth generation. “We raise beef cows, hogs and row crops,” he said, and “driving four or five hours to see our customers is not a problem.” Even hopping a plane from time to time is not problematic in dealing with them. “All of our farm agents have farming experience. That’s very important because we find it difficult to apply insurance policies to something you don’t understand.” Being an independent agency, they represent multiple carriers as well as all types of different policies.
“What makes farm transitions so difficult is that there is no one size fits all. There’s no book I can give you that says ‘follow these steps and you’ll be fine,’” he said.
But what does transition mean? It means different things to different people. Much of what Marinkov said was generational – going from generation to generation because that is the most common type of transition, but there are other types as well.
“You might want to build your business in order to sell it. Transitioning from one sector of agriculture to another is also a consideration; leaving dairy, for example, to go into some other facet of the business,” he said. “Maybe you want to move your operation, from Pennsylvania to Ohio or Kentucky. Moving from one part of Pennsylvania to another can also present its share of problems. If you want your property or business to continue forever, now we’re talking perpetuity. That calls for a different structure because you want it to last for a very long time.”
Marinkov also tossed this into the mix: a transition plan is a very delicate operation. “You have to be very thoughtful when you go through it,” he said. “Financial independence is something that allows the next generation to begin to receive farm income. It allows the senior operator to be a part of the operation, a key portion to a successful transition. And estate planning is essentially all of the paperwork that none of us really want to do.”
Two elements that are most often overlooked are risk management and financial independence. “I ran into customers of mine who lost their entire farm because their agent was not aware that dairy cows were milked in confinement, and their policy excluded buildings where animals were confined. When that building burned, they had no coverage. Catastrophic loss to a farm asset that isn’t covered can be devastating. It can devastate your ability to operate and can definitely devastate your ability to transition your farm successfully.”
Marinkov said he’s also witnessed scenarios where Dad is expecting the kids to step up and do more, and the kids are stepping back and saying they’re not really sure that the farm has room for them in it – an odd sort of stalemate.
Life insurance policies are tax exempt, and therefore the proceeds are tax exempt, so you may have to consider how Social Security or Medicare can impact your planning. Medicare does not cover everything; most people need some supplemental coverage. “The last statistic I saw,” noted Marinkov, “was that 73% of people need some long term care,” which, he said, can be extraordinarily expensive, depending on the type of care.
by Stephen Wagner