Does Your Farm or Agri-Business Need a “Power Audit?”

Rincker Law Estate Planning Leave a Comment

I really love Neil Harl’s book titled “Farm Estate & Business Planning.”  He briefly talks about the “power issue” when it comes to farm families and warns folks to consider this issue when formulating an estate plan.  He illustrates this point with the following example:

“An aggressive, able farmer died unexpectedly just days short of his 50th birthday.  The business, which was in a corporation with all of the stock owed by the decedent, was left in his will to his wife (who received 48 percent of the stock) and the four sons, each 13 percent.  The sons embarked on an expansion strategy with every available dollar placed back into the operation.  In 30 years the corporation hasn’t declared a dividend.  Mother is furious.  She holds well over a million dollars of stock but hasn’t received a cent from her block of stock since her husband’s death.  The sons outvote her block of stock since her husband’s death.  The sons outvote her at the shareholders’ meetings, 52 percent to 48 percent.  Had her husband realized that economic pressures on the sons to pursue an aggressive expansion strategy might lead to the sons outvoting their mother, he might well have handled the situation differently.”

I really love this example illustrating the need for a “power audit” during the estate planning process taking a long hard look at every conceivable scenario.  It shows the need for a proper power balance in an estate plan.  It also highlights the need to work with an estate planning lawyer who understandings the food and farming industry.

Lawyers are doom and gloom people — we are trained to think about all the worst possible scenarios.  A good estate planning attorney will test multiple options against these worst possible scenarios.

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