How can the property and finances be split if a succession plan is Not in place?
If you don’t have a plan in writing with a Last Will and Testament, Trust and/or business formation documents (e.g., Operating Agreement or Bylaws) then the law will decide for you. Everybody has an estate plan- it’s what the “default rules” are in your particular state. These are rarely perfect for every farm and ranch family. Executing an estate and business plan puts the law in the hands of the family to make their own rules tailored to their needs.
Importantly, there are differences among estate planning, business planning and succession planning. Estate planning consists of a Last Will and Testament, Powers of Attorney (for health and property), Living Wills, and perhaps a trust. Business planning has to do with the type of business entity that your family uses such as a limited liability company, corporation, limited or general partnership, sole proprietorship, or not-for-profit corporation or combination thereof. Succession planning includes both estate and business planning in addition to a game plan on how the managerial knowledge will pass from one generation to the next.
What kind of added layers and legal fees are involved when a succession plan is not in place?
I believe there is an estate plan to fit every budget. Nearly every person needs a Last Will and Testament and Powers of Attorney (for health and property) if they are incapacitated. This might be Step 1. Formation of a Limited Liability Company for the operation of your farming and ranching enterprise might be Step 2. Formation of a second business entity for the land might be Step 3 along with a lease between to the entities. Step 4 may consist of a revocable trust. Then if estate tax is later an issue there might be a Step 5 discussion about layers of business entities.
Of course, estate planning is not “one and done.” It needs to be massaged and improved overtime to better fit your changing needs and goals.
How does the legal team determine who has the lead in making decisions if a clear heir is not outlined?
This is a deeply personal issue to every farm family. Unfortunately, for some farm and ranch families there is no clear heir so they must have very real conversations to decide if the agricultural operation may go to a third-party. This is not the decision of the lawyer to make. I recommend people use an agriculture mediator to help facilitate those challenging conversations. Due to COVID-19 concerns, most mediators can facilitate discussions virtually via Zoom and GoToMeeting, which is perfect for families with heirs who have some geographic spread.
Do you have any examples/ stories of people who have not made appropriate plans and thus created more chaos than they realized after they passed?
As an attorney, I rarely get the phone calls when things to well. I get the phone calls when somebody has died and there is no written plan or a sloppy estate plan. There are numerous examples. One phone call that I still remember to this day was with a cattleman whose father had recently passed – he told me he had a 50/50 partnership with his father on land and equipment but nothing was in joint name, nor was there a partnership agreement. He was worried that he would have a dispute with his mother at the time. This is exactly why having a clear estate, business and succession plan are so important – it provides security and clarity to those involved and helps preserve those precious family relationships.
When a succession plan is not in place, is it safe to assume that the land and assets are most likely divided equally amongst the next kin in line (i.e., the kids)?
It depends on the “default rules” in your estate; usually, a surviving spouse will be entitled to a certain portion of the estate.
Apart from the legal matters- when a succession plan is not in place, do you often find that the next in line are not adequately prepared to take over the property?
Of course. It can take an extended period of time to learn the ins and outs of any agriculture enterprise. Without a game plan on instilling managerial knowledge and experience to the heir, then this person will likely not know what to do. Farms and ranches are encouraged to create Operations Manuals for successors to help ease the transition.
How can one be proactive and establish a plan?
Put it on your calendar and treat it like any other deadline in your life. Work backwards to try to meet this realistic goal. After interviewing estate planning attorneys, if they say it might take 2 months to complete and you wish to complete this by April then you know you must get started by February. Working backwards on any goal is a great approach.
What do you believe is a leading factor for producers not establishing a plan?
It doesn’t feel urgent…. Until it does. You are never going to get a great “last minute” or “emergency” plan. We never feel like our death is imminent but each time I have a friend, colleague, client or acquaintance die tragically and unexpected I am reminded about just how precious life is and we cannot take it for granted. Stop putting it off and get an estate plan. Doesn’t have to be perfect from the onset but get something in place and perfect it overtime.