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You’ve worked hard to make the family farm a success, so why leave its future to chance? While 43% of family businesses are without a succession plan1, having one brings together two core elements of your family farm – your business and your family. And by recognizing and addressing potential problem areas, you’re more likely to smooth the way for the next generation. When you add an estate plan, you’ll clarify how the assets of the business leader will be distributed, including business ownership interests.2
Let’s start by making the case for both a succession and an estate plan. With a succession plan, your family farm is ready for the future with a known leader and clear direction. With an estate plan, you’re prepared for estate-related costs, and it will be simpler and quicker to distribute assets. With both plans in place, you’ve increased the sustainability of your enterprise, prepared the next generation for their new roles, and reduced the potential for disagreements and costly lawsuits.2
If you agree with the logic of succession and estate planning, what issues might arise with these plans? You can help ensure a smooth transition by identifying potential problem areas, such as3:
Once you’re aware of potential pitfalls, there are steps you can take to enhance your plans’ success4. First, involve an experienced advisor in the process, such as a fiduciary to administer a revocable trust or an estate after the grantor’s passing. An independent fiduciary, such as a bank or trust company, can dramatically reduce the possibility of conflict between family members and address the legal, financial and business components of a trust or estate.
If your farming business has both active and passive family members, find ways to equalize future distributions. One option is to buy life insurance. Another is to have active children purchase the amount of business assets that would have gone to the passive ones. Experienced professionals can guide you in this area.
Despite your best efforts, family conflicts may arise. That’s why it’s important to include provisions for mediation and binding arbitration to settle disagreements and minimize costs. It also helps to set expectations with ongoing communication about your desires and plans. These conversations prepare your family by letting them know who you’ve chosen to run the business, how they’ll pay for funeral costs and taxes, the reasons for any unequal distributions, and more. This is another area where an independent fiduciary can assist you.
In his article, Succession Planning – The Do’s and Don’ts of Family Succession, Andrew Beattie provides additional advice on succession and estate planning for family farmers, including:
Mr. Beattie also sheds light on why succession and estate planning are especially complex for family farm businesses:
To preserve family harmony and enhance your plan’s success, let us work with you to navigate the steps to begin estate planning. Our Wealth Management team of experienced professionals is ready to support you with trust administration and estate settlement. They’ll partner with you to address key issues, such as who’s taking care of you in your older years and who’s helping now on the farm. The team can support you in talking with your children about your estate plan, and guide you through some initial considerations about who will succeed you in running the farm.
You can count on our Wealth Management team to provide expertise and financial protection for your family business. Our experienced professionals are ready to support you with trust administration and estate settlement.
To get started, call us at 1-855-383-4301, 8:00 a.m. to 5:00 p.m. Central Time.Sources 1 “The family business sector in 2016: Success and succession.” pwc. https://www.pwc.com/gx/en/services/family-business/family-business-survey-2016/succession.html 2 “Estate Planning vs. Succession Planning – What’s the Difference and Why Are They Important.” TDT CPAs and Advisors. https://www.tdtpc.com/2018/04/estate-planning-vs-succession-planning-whats-the-difference-and-why-are-they-important/ 3, 4 “Think of family harmony as well as assets during estate planning.” Timothy P. O Sullivan, The Wichita Eagle, 8/20/2009. https://www.emprisebank.com/files/documents/Think_of_family_harmony_as_well_as_assets_during_estate_planning.pdf 5 “Succession Planning – The Do’s and Don’ts of Family Succession.” Andrew Beattie, ProAdvice Pty Ltd., Grains Research & Development Corporation. https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-papers/2014/08/research-update