Estate Planning Different for Business Owners and Top-Level Executives

Do you need an estate plan? If you have children, ownership shares in a business, or even in more than one business, a desire to protect your family and business if you became disabled, or charitable giving goals, then you need an estate plan. The recent article “Estate planning for business owners and executives” from The Wealth Advisor explains why business owners, parents and executives need estate plans.

An estate plan is more than a way to distribute wealth. It can also:

  • Establish a Power of Attorney, if you can’t make decisions due to an illness or injury.
  • Identify a guardianship plan for minor children, naming a caregiver of your choice.
  • Ensure that assets are controlled through beneficiary designations rather than simply through a will and pass privately when owned through trusts. This includes retirement plans, life insurance, annuities and some jointly owned property.
  • Create trusts for beneficiaries who are younger, disabled, or others you feel need some kind of protection.
  • Identify professional management for assets in those trusts.
  • Minimize taxes and maximize privacy through the use of planning techniques.
  • Create a structure for your philanthropic goals.

An estate plan ensures that fiduciaries are identified to oversee and distribute assets as you want. Business owners, in particular, need estate plans to manage ownership assets, which requires more sophisticated planning. Ideally, you have a management and ownership succession plan for your business, and both should be well-documented and integrated with your overall estate plan.

Some business owners choose to separate their Power of Attorney documents, so one person or more who know their business well, as well as the POA holder or co-POA, are able to make decisions about the business, while family members are appointed POA for non-business decisions.

Depending on how your business is structured, the post-death transfer of the business may need to be a part of your estate plan. A current buy-sell agreement may be needed, especially if there are more than two owners of the business.

An estate plan, like a succession plan, is not a set-it-and-forget it document. Regular reviews will ensure that any changes are documented, from the size of your overall estate to the people you choose to make key decisions.

Reference: The Wealth Advisor (July 28, 2020) “Estate planning for business owners and executives”

What Do Farmers Need to Create an Estate Plan?

Planning for the end of life is intimidating for everyone, but when the plan includes a family business like a farm or ranch, things can get even more challenging. That’s why estate planning, that is, planning for the distribution of assets once you die, is especially important for aging farmers. The details are in the article “How farmers can start an estate plan” from Bangor Daily News.

Death and dying are not easy to talk about, but these conversations are necessary, especially if the family wants to continue as a farming or ranching family. For aging farmers and their families, here are a few tips to demystify the planning process and help get things started.

What are your goals? Think of estate planning as succession planning. This is about making decisions about retirement and handing down a business to the next generation. If you had a regular job, you’d have far less to consider. However, succession planning for a family business owner involves more resources and more people. Having a clear set of goals, makes that transition easier. Add to that list: your fears. What don’t you want to happen? If your children don’t know how much you want them to keep the farm in the family, they may take other actions after you die. Share your goals, hopes and yes, worst case scenarios.

Build a team of professionals. The number of moving pieces in a family farm means you’re going to need a strong team. That includes an estate planning attorney who has worked with other farm families, an accountant, a financial advisor and an insurance professional. Depending on your family’s communication skills, you might even consider bringing a counselor on board.

List out your assets. Don’t assume that anyone in the family knows the value of your assets. That includes deeds to land, titles of ownership for vehicles, information about any property mortgages or loans or leases. If you are leasing land to others, you’ll need the lease agreements as well as property titles. If your lease agreements are based on a handshake, your attorney may request that you formalize them. A verbal agreement may be fine while you are living, but if you should pass and your heirs don’t have the same relationship with your tenant, there could be trouble ahead.

Consider who will be in charge when you are not there. Whether you are planning to work until you die or making a retirement plan, one of the hardest decisions will be to name a successor. Inter-generational politics can be tricky. You’ll need an unbiased evaluation of who the best candidate will be to take things on. However, going into this now is better than hoping for the best. That’s when things go south.

Talk to your estate planning attorney. Just as people should start planning for their retirement as soon as they start working, planning for the transition of the family farm is something that should start when it is years in the future, not when the transition is a few months away. It’s a process that takes a long time to do right.

Reference: Bangor Daily News (March 5, 2020) “How farmers can start an estate plan”

Succession Planning for Family Owned Farms

Succession planning is not thought of as fun, simple, or quick. That’s true. A recent article from Ag Web puts it clearly: “Succession Planning Takes Leadership.” It also takes time, knowledge and the guidance from smart professionals, including estate planning attorneys, financial advisors and accountants. Let’s look at these four important elements.

Clarity. Transitioning leaders need to answer a few questions. What do they want for themselves, for their operation and what do stakeholders want? Developing a successful plan by guessing what other family members want, rather than asking them directly can undo good planning. Having private conversations with individual members of the family will lead to more honest answers.

Certainty. Many times, families are not in perfect harmony about what succession looks like, which can lead to some uncertainty. Family leaders must step up and be decisive, and their decisions may not be popular with everyone. However, if a leader lets someone else make decisions, the situation becomes murky and confusing.

Continuity. It can take two or five years to create a succession plan, depending on the complexity of the operation and the number of family members involved. The actual succession itself can take ten years to unwind, depending on the time horizon for the transitioning leadership. A big problem for any process that takes so long, is the loss of focus and momentum. Your team of professionals should be able to help mitigate this challenge.

Communication. A strategy for communication needs to be built into the succession plan, although it is often overlooked. Develop a timeline and establish when you will communicate progress and/or milestones to stakeholders. Your professional team may be needed to help with both the timeline and the communication strategy. Family members need to know what is happening, even when it seems like nothing big is occurring.

With strong leadership in each of these four factors, the succession plan is more likely to succeed. With less stress and an increased level of trust and clear communication, the family will work together to achieve the leader’s goals.

Reference: Ag Web (December 5, 2019) “Succession Planning Takes Leadership”