Farmers – and everybody else – want to believe they'll never fall prey to a disability. Believe it or not, that's the first sign of impaired judgment that begins in teen-hood and ends in nursing care.
Most farmers carefully plan for retirement and what'll become of their estate after death, says John Hartog, an attorney and certified specialist in estate planning, trust and taxation law. "But too few provide for that middle ground – incapacity. And younger ones most often don't plan for it at all."
You should plan for incapacity, adds Haitham "Hutch" Ashoo, CEO of Pillar Wealth Management. "If it never comes into play, that's wonderful," he adds.
But the reality is that dementia is the world's number one cause of disability and by the time symptoms are apparent, one's competency may already be affected, points out Jim Kohles, CPA and chairman of RINA accountancy corporation. And strokes – number two – can be tragically sudden.
Three farm business steps to take
Incapacity planning ensures you're able to speak for yourself in all decisions, from your medical care to financial affairs. Here are three steps every principal farm business operator should take:
- Get disability insurance: "The likelihood of something happening that affects your ability to work is high, so you really should carry disability insurance," says Kohles. How you pay for it can have different tax impacts. If purchased through your business, whether as owner or employee, you can take a tax deduction on the premiums. That means any claims paid will be taxable.
If you pay with post-tax dollars, any benefits are not taxable. "The difference in saving taxes on $200 a month in premiums versus $5,000 a month in benefits is significant," he adds. And he cautions that more new policies now are capped at 10 years of payments – not lifetime. Be sure you understand the terms.
- Legal documents must clearly state your wishes: That means you need a durable power of attorney for financial affairs plus an advanced health care directive for medical decisions, says Hartog.
Name the people who'll be responsible for implementing those decisions. Draw up a document that delineates their responsibilities and powers.
Choose people you have a great deal of faith and trust in, he adds. "Don't pick someone if you have a quiver of doubt about them." One safeguard is to name an agent, and a second person to whom the agent must report. Just the idea that you have to report keeps people honest."
In some states, the government provides forms so you can prepare these documents yourself. But it's always wise to at least consult with an attorney, says Hartog.
- Non-financial spouses must be familiar with the plan: "Typically, one spouse is in charge of the finances, and the other takes a back seat, or even a no seat," notes Ashoo. "The non-involved person needs to understand how the finances are arranged and planned. He or she needs to be very comfortable with the family's advisors."
These steps prevent a nightmare during what'll be an already stressful time when the lead business person suddenly becomes incapacitated. Both should attend meetings with the family's advisors, even if one doesn't fully understand or isn't interested in all the details.
If something happens, they'll at least know who to call and what to do. That peace of mind lessens the nightmare.