Tax Tip of the Week | No. 448 | Litigious Times for Farmers (and All Businesses)

Tax Tip of the Week | Feb 21, 2018 | No. 448 | Litigious Times for Farmers (and All Businesses)

I am not an attorney. I am not an insurance agent. Much of the following content was derived from “Welcome to the Litigious Age” written by Chris Bennett in the Farm Journal (January, 2018 pages 26-27). His article is slanted towards farmers but many of the ideas and concepts also apply to other businesses and industries. His article discusses the need for having appropriate insurance coverage. And, yes – good insurance is generally considered as the first line of defense against litigation. At the end of this article, I will briefly discuss the use of various entities as another line of defense.Physical injuries can occur on a farm. They can happen to practically anyone. The list of people that could come in harm’s way is long and includes neighbors, employees, subcontractors, workers, suppliers, relatives, friends, passersby, hunters, trespassers, sales reps, guests, customers (e.g. hayrides). Lawsuits may ensue as the result of an injury. Such lawsuits are capable of swallowing the farm’s assets. Too often, farmers and other business owners are viewed as being wealthy with significant assets or having deep pockets. Even if the claim is insured, the existing coverage may not be enough. In this situation, the farmer may be responsible for the shortfall. Often after paying a claim an insurance company may cancel the policy or increase future premiums. For an example, one farmer allowed a neighbor to ride a snowmobile across his property. The neighbor ran into a white gas storage tank.  Argument was “the farmer should have recognized the low-visibility of the tank and marked it.” The insurance company paid the claim. But, with increased premiums to the farmer the insurance company will eventually recover their losses.Meeting with your insurance agent at least once a year makes a lot of sense. Much of your insurance policy is often difficult to understand. So many farms’ assets and various operations may require specific coverage that is not otherwise covered by a general liability policy. Find out from your agent what is covered and what is not. Do you have enough coverage to protect your assets?  Etc.As promised earlier – I will briefly discuss some of the traits of various entity choices and their application to a conversation on insurance coverage and potential litigation. First, let me define an entity. An entity includes a person, partnership, LLC, trust, or corporation – each of which has a separately identifiable existence. Each entity choice may come with its own set of tax rules and other regulations. The best way to describe some of the benefits of entities is to mention the old adage of – don’t put all of your eggs in a one basket, because if you do then the possibility exists of losing all of your eggs in one painful moment. Use of various entities aside from only a personal one may provide you with an opportunity to have multiple baskets to divide up your eggs. So in the event of some unfortunate mishap you would not have all of your eggs in one basket. As always, please consult with your insurance agent, attorney and your CPA.Thank you for all of your questions, comments and suggestions for future topics. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.This week's author – Mark Bradstreet, CPA--until next week.