What Are the Minimum Legal Documents a Farmer or Family Business Owner Must Have?

There are five fundamental estate planning documents that every farmer, family business owner, or every adult, should have prepared and properly executed. They are clearly outlined in the article “Five documents every farmer should have” from Ag Week. However, as reported as recently as January 2019 from AARP, six of 10 seniors don’t have a will. The number of farmers who lack an estate plan is fewer, and probably even less have advance care directives. This is not good for them or their families.

Farm and ranch families often find themselves facing complicated issues about how the land should be divided among the next generation, and whether the next generation will continue to maintain the ranch or farm. This is something that estate planning addresses.

Many people think of the will as the estate plan. However, it is only part of the plan. The will says who will inherit property, including assets and debts, and who will be responsible for carrying out your directions. That person is the executor, who acts as your agent when you have died.

While there are online wills available, it is recommended that farm and ranch families work with an estate planning attorney. They are encouraged to meet with a few, until they find one who they are comfortable with and they believe has the experience that suits the family’s situation. The attorney will help with how property is titled and how to handle the tax implications. These are both important parts of an estate plan.

Every adult needs an advance health care directive, the legal document that specifies the medical procedures that they want to maintain life, if there is a health crisis. An advance directive usually involves a living will, and names a person as health care power of attorney to make health care decisions, when you are unable to do so for yourself.

The living will is used to specify the types of medical procedures you do or do not wish to have performed to keep you alive. Medical professionals or first responders often do not have access to this document and must follow their legal and ethical requirement to maintain life, in any way possible. Make sure this document is readily available and that other family members know where it is located.

Provide a copy of the living will and durable power of attorney to your doctors and the institutions that usually provide your care. The power of attorney should specify who has primary responsibility to make these decisions and at least one alternate.

Talk with your physicians about your feelings and wishes for these documents. They may also benefit from having the person you have named as your power of attorney with you at the time of the conversation. That way everyone is clear about what your wishes are.

A power of attorney is given to an individual, your agent, who can make financial decisions on your behalf, if you are incapacitated. They can write checks, make deposits and have access to your safe deposit box. There will be forms to fill out, so don’t delay having them created and properly executed.

While it is not legally enforceable, write a letter of intention to accompany your will. Give a copy of your letter to your executor, and possibly to a trusted family member. This way, you can make sure they know:

  • Where important documents, including life insurance policies, savings accounts, loans, leases, titles to property and other legal documents are located.
  • Instructions for the care of minor children. Your will should name a guardian, but any information you can share about your children will be helpful.
  • Instructions of what you want to happen to the family land.

The more information you can prepare and provide for your survivors, the more likely your wishes will be carried out. It can also be psychologically soothing to know that you have communicated and legally documented your wishes for those who live after you.

Looking to pass on the family farm? Click here to learn more.

Reference: Ag Week (April 5, 2019) “Five documents every farmer should have”

What Are Some Good Tips for Business Succession Planning in The Internet Age?

When considering how to make sure your business continues to thrive, it’s important to remember that if you do nothing, your business already has a default plan in place: if no additional planning is done, your business is an asset of your estate and will be subject to probate.

Forbes’ article, “Business Succession Planning In The Internet Age,” says that there are four issues with this default plan. First, it can take years for a court to probate your estate. In that time, your business can dry up, when probate is finalized. Next, if you do not have an estate plan, your heirs may fight over who will inherit the business. Whoever inherits the business under the state’s intestate succession laws may also not be the best person to make sure your business will continue to grow and be successful. Finally, if you have co-owners, they might not like your heirs and could get into disputes with the new owners that harm the business.

There are two legal tools to look at when reviewing your options: a buy-sell agreement and good estate planning.

A Buy-Sell Agreement. This is a contract between the co-owners of a company that addresses a variety of business-changing events, such as when an owner dies. Rather than the deceased owner’s equity being a part of the assets distributed during probate, the buy-sell agreement can include an agreed-upon amount that will be paid to the estate, in exchange for the business repurchasing the equity. The purchase is often financed with a life insurance policy on each owner of the business.

Estate Planning. Instead of allowing your business to be subject to probate, a business owner can work with an estate planning attorney to make the business an asset of the owner’s trust.

With either option, be sure you note the important digital assets for the continued operation of your business. Your business’s digital assets may include customer lists, intellectual property and creative products. It is important to remember these tips on considering your digital assets:

  1. Understand the policies that impact your tools. Review your software provider’s policies on what happens if your company needs to name a new point of contact, pay bills differently, or be transferred to a different company, in case the unexpected happens.
  2. Security and redundancy. A company’s success requires owners and employees to keep proprietary information and client information secure. However, the concern for safety must be balanced with redundancy that considers which people will have access to digital assets and an understanding of what to do with them, if the owner or main management team is unable to tend to business as usual.
  3. Add digital assets in legal documents. Include an inventory of digital assets in your buy-sell agreement or estate plan. Be specific about who should get access to digital assets.

Creating a detailed plan as to who should have access to your business’s digital assets in case of your incapacitation or death, is an important part of succession planning.

Want to keep the family farm going? Here’s an article on succession planning for the family farm.

Reference: Forbes (April 8, 2019) “Business Succession Planning In The Internet Age”

How Do I Make a Seamless Transition of a Family Business?

The North Bay Business Journal’s article, “How to plan for a smooth transition of your family business,” explains that in wine families, usually one or two children go to work in the business. There’s often some kind of preferential treatment for them with economics or voting and control. A business owner needs to plan carefully in transferring her business to the next generation.

A crucial step in handling family dynamics is calling a meeting with everyone to discuss what’s going on with their business. A family meeting is an opportunity to discuss decisions with family members with reduced conflict and confusion.

To have a successful business succession plan, start with a business plan for the business. Next move to both financial planning and estate planning, especially estate planning for the current owner. You should then do tax planning around all of that.

Addressing the tax exposure is a challenge faced by those transferring assets. There are some tax issues with estate planning and asset transfer, unless it’s done during life. Transferring a business, or other assets when the owner is still alive, can be beneficial in the long run. Lifetime gifts can be a way to reduce estate taxes, because making a gift today before there’s been substantial appreciation is a way to leverage your gift and estate tax exemption.

A parent who transfers assets while still alive, would have to be willing to say goodbye to the income from an asset.

However, that doesn’t necessarily mean giving up control of the business. The process of transferring control of a business can benefit from a gradual approach. If you want to transfer the business to one or more of your children, but you want them to succeed on their own, you could bring them into the business as a manager and give them a little bit of ownership.

As a business owner selling out of a business, you need an experienced attorney to help you understand the impact of the amount of significant wealth that you may have, after the sale of the business. He or she will create a plan that will respect your values, goals and commitments, while making sure you have flexibility.

Inheritance conflicts don’t stop at who inherits the family business, here’s how to be smart about inheritance.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”