It is impossible to know how events will play out, both on a grand scale and in small and unexpected ways. Last minute decisions, like those of the rock musicians who won seats in bets and then were killed in the Buddy Holly plane crash in 1959, are often said to be a function of fate or a larger plan. But that is not how you want to handle planning for the succession of a family farm. Today's family farms are poised at an important place in time. A lack of planning could spell a disaster for families, farms and our national ability to produce food.
Planning to pass the family farm down to the next generation requires consideration of a large number of facts, from the size of the farm to the emotional health and dynamics of the family itself. Running a family business of any kind is challenging, but when the business is a farm, where capital investment and uncertainty are both enormous, the potential for a perfect storm of disastrous proportion is always present. Your best ally is a plan, as described in Iowa Farmer Today, "Discuss farm estate and succession plans now so no heir is 'left standing.'"
The article advises every farm family to create and review an estate plan and a farm succession plan. These two plans may overlap, but they are two different programs. The estate plan includes documents such as a will or trust, powers of attorney, farm continuation language, executors, trustees, distribution plans, and the age of distribution for minor beneficiaries, as well as contingency plans in the event a beneficiary has predeceased or is disabled at the time of your death. The estate plan includes the coordination of beneficiary designations of retirement plans and life insurance. An important point is to maintain liquidity to pay debts, taxes, or administration costs. This may not be accomplished by simply naming your children as beneficiaries, as many do.
A farm succession plan typically includes the business operating agreements, terms of future purchase, the terms for lease if not purchased, and limitations on ownership. Which of the parts of an estate and farm succession plan will be most important to your family will depend on the timing and what stops the music in the estate.
A key part of any estate plan is identifying ownership and an updated fair market value of the estate assets.
Many folks think that an estate plan just deals with the distribution of assets at death. But an estate plan should identify and discuss strategies for the distribution of any assets that could or should be distributed prior to your death, in addition to those distributed when you pass away.
A good estate plan not only identifies assets but sets out a timeline to distribute those assets with a process that is tax efficient, while keeping in mind the general goals of the estate.
Sharing plans for your estate and business succession is critical for the effective and efficient transfer of the operation. You can avoid some hurt feelings and selfishness down the road if you explain your goals and transparently deal with the heirs whose ideas of distributing your estate may not be the same as yours.
A critical aspect of a succession plan is to identify the method of pricing the assets that adequately represents not only the structure of the business but also the goals of the owner. Another important component of a complete plan is a source of funding when the transition occurs, such as a loan or insurance if the buyout would occur at death. Cash flow is essential for any viable business.
Business succession and estate planning is more of an art than a science. Although there are parts of each plan that are consistent, the real value of an estate and a business succession plan is recognizing the unique issues of each individual situation. There's no "boiler-plate" plan that will work and should be automatically used for every family business. You need to find a way to create plans that fit your distinctive goals.
Sometimes being involved in a farm business without a concrete estate and farm succession plan can be a little bit like playing the game of musical chairs: when the music stops in your estate, don't let your farm heir be the one left standing with uncertainty and confusion—and ultimately find themselves out of the game.
Reference: Iowa Farmer Today (October 16, 2015) "Discuss farm estate and succession plans now so no heir is 'left standing'"
For more information on asset preservation and estate planning, please visit my estate planning website.
Suggested Key Terms: Estate Planning, Wills, Probate, Trusts and Estates, Asset Protection, Inheritance, Tax Planning, Estate Tax, Farm Operations, Business Succession Planning
Financial and Estate Planning Tips That Unmarried Couples Need to Consider / New York, NY & White Plains, NY
If you are a member of a couple, whether you are married, living together or have some creative arrangement, if your lives and finances are intertwined, there are money and estate planning matters that should be dealt with sensibly and fairly. The biggest mistake most couples make is not planning and not discussing their financial lives. Without good communication and proper planning, one or the other member of the couple invariably ends up resentful or feeling like they are being treated unfairly. Best example: one is a saver, the other is a spender.
A series of short term and long term tips are presented by The Motley Fool in "Financial Moves Unmarried Couples Should Consider Making." Perhaps the most important advice is to start talking, keep talking, and have a plan. Equally important is to discuss which incomes and assets are to be treated as joint incomes or joint assets and which will remain separate.
Calculate how much money is coming into the household and how you both want it to be spent. Create a budget and a plan for keeping it. Plan for retirement savings and other savings goals, like a down payment on a house or college expenses. Most of all, live below your means. This is especially true if one or both partners have substantial debt. Make it a priority to get that paid off.
Unmarried couples don't have some of the automatic protections married couples have, especially as far as estate planning. Most state laws give a spouse the right to inherit automatically. However, an unmarried partner's rights are many times almost nonexistent. That shows how important it is to set up your finances deliberately if you want to leave money to a partner while you're not married.
Here are two strategies to achieve that goal.
Joint Tenancy. Holding property in joint tenancy accounts with rights of survivorship serves to transfer ownership directly to the surviving partner after death without probate, and without a will or regard to the laws of intestate succession. Beneficiary designations on retirement accounts and life insurance policies can also do the same thing.
Powers of Attorney. Make sure to give each other powers of attorney for both financial decisions and healthcare choices on each other's behalf.
Too many people just make assumptions about what their partner would want—or they ignore tough decisions. Doing this only makes it harder if the worst does come to pass. Without these tough conversations, you might find yourself unsure what to do if your partner is temporarily or permanently incapacitated, or if they pass away.
Talk openly about your wishes, and then make plans to put them in place with the help of a qualified estate planning attorney.
Reference: Motley Fool (October 17, 2015) "Financial Moves Unmarried Couples Should Consider Making"
For more information on asset preservation and estate planning, please visit my estate planning website.
