Prepare for the Unexpected: Your Succession Planning Portfolio
You may dream of someday passing down your family farm and your legacy to the next generation, but are you taking the necessary steps to prepare for that handoff?
When it comes to successful succession planning, you do need more than a will – there are other important documents you must consider and open, ongoing communication is a must.
According to attorney Polly Dobbs, “This process doesn’t have to be overwhelming. Farmers should begin by asking themselves: ‘What if I get hit by a bus?’ Then draft your succession plan like that life-changing event is going to happen tomorrow. The hard work comes in establishing the foundation for your plan based on today’s circumstances—the tweaks are easy as things change down the road.”
“For example,” Dobbs says, “If your grandson is still playing with toy tractors in the backyard, don’t draft your plan to hinge on him taking over the farm operation. When he’s ready, 17 or so years from now, tweak your plan,” she says.
The Essential Documents
“Most farm families struggle when it comes to succession planning,” says Polly. “Use these legal documents to help you transfer farm ownership to the next generation; just be sure they are up-to-date and reflect your current goals,” she says.
Will: A legal document that communicates a person’s final wishes, as pertaining to possessions and dependents.
Revocable Trust: A trust established during a grantor’s lifetime is used for the placement of some or all of a person’s property to avoid probate administration.
Durable Power of Attorney: A legal document that enables an individual to designate another person, called the attorney-in-fact, to act on his or her behalf if the individual becomes disabled or incapacitated. This document will avoid the need for a court proceeding to establish guardianship.
Written Operating Agreement, Partnership Agreement or Bylaws: A set of standard
operating procedures and management policies designed to maintain the operational integrity of
a farm. It may include a decision-making process, income/expense management, ownership
transfer and other terms and conditions. Note: LLCs require operating agreements, partnerships
require partnership agreements and corporations require bylaws.
Shareholders Agreement or Buy/Sell Agreement: A formal agreement facilitating ownership transfer based on triggering events like death, disability, bankruptcy or divorce. The terms may be in a standalone agreement or incorporated into the governing documents described above.