If you’re a small business or family farm owner, a comprehensive estate plan shouldn’t just address your personal property and assets. You’ll also want to protect your business legacy. Keep reading to learn how a succession plan can ensure a seamless transition for your business after your death.
What Is a Succession Plan?
A succession plan is essentially an estate plan for your business. As a small business owner, your business or family farm isn’t just a valuable asset — its success and reputation are part of your legacy. When you craft an estate plan, you’ll want to safeguard these hard-earned resources.
If you don’t create a succession and estate plan, the court will divide up your assets based on Michigan’s inheritance laws. These laws will apply a “one-size-fits-all” approach to your estate and won’t consider your wishes or unique circumstances. Often, this can lead to unwanted results, long delays, costly probate proceedings, or even the dissolution of your business.
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How to Build an Effective Succession Plan
There are several elements to a business or farm’s succession plan. You typically must:
- Decide how to transfer business or farm property when you pass away or retire
- Identify and train your next business leaders
- Implement systems that will facilitate a seamless and efficient transition in leadership
If you’re not sure where to start with these complex tasks, contact one of the experienced business and estate planning lawyers at Phillips & Santana.
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As you create your succession plan, you’ll need to carefully assess your business and farm assets, your long-term goals, and your business’ organizational structure. While it’s easy to let emotion impact your decisions, your succession plan should focus on the organization’s long-term needs and not on any individual person’s desires or preferences.
You should ask yourself:
- How do you want to transfer the business or farm? Should your successors inherit the business or purchase it from you?
- Will your farm’s or business’ value trigger federal estate and gift tax obligations?
- Will your successors require additional training before they take over the business?
- If you become incapacitated, would someone have the legal authority to step in and run your business? Who should hold this commercial power of attorney?
- Have you documented your business’ or farm’s operating procedures and shared them with your successors?
An experienced business and estate planning lawyer can help you manage your potential estate tax burden and work with you to create a plan that sets your business up for continued success.
Drafting and implementing a succession plan is a complicated and highly technical process. When you work with a lawyer, they should strive to clearly document your plan and make sure it complies with state and federal laws. Your lawyer can also help you regularly review your succession plan to ensure that it still meets your needs.
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Finally, you should explain your succession plan to your loved ones. While you might assume that your children plan on taking over your business, you could be mistaken. When you discuss your succession plan with the people it will affect, they can help you identify the best possible successors and avoid potential hurdles that could negatively impact your business or your farm.
Special Considerations for Family Farm Succession Plans
If you’re a farmer, you might have some special considerations. Before you retire or face an unexpected, incapacitating medical condition, you should take steps to protect your loved ones and your family farm.
You Might Worry About Estate Taxes
Family farms are more likely to face estate tax obligations than many other businesses. According to a 2009 USDA report, farm owners are twice as likely to pay estate taxes compared to the average person. While your land and resources are incredibly valuable, your family might not have enough liquid assets to cover your estate tax bill.
However, an estate plan may be able to reduce your tax burden by establishing trusts, private annuities, and other structures. You can also purchase life insurance policies that help offset your estate tax obligation.
You May Want to Protect Your Land’s Agricultural Heritage
We’ve all seen the amount of farmland in West Michigan decrease. Many productive farms are turning into gated subdivisions and shopping centers. However, some farmers still want to protect their land’s agricultural heritage.
As part of your estate plan, you can place conservation easements on your farmland, which may help preserve your land’s agricultural purpose. An estate planning and business lawyer can help you understand these options and discuss them with your family.
The Law Offices of Kari Santana Can Help You Protect Your Business or Farm
If you’re ready to start succession planning, contact the Law Offices of Kari Santana for a free consultation. As longtime West Michigan residents, we’re proud to serve our community’s business owners and farmers. We work with our clients to build practical, cost-effective succession and estate plans that protect their legacies and serve their long-term goals.
To schedule your no-risk consultation, complete our online contact form or call us at 616-717-5759.
References
Durst, R. (2009, June 1). Federal estate taxes affecting fewer farmers but the future is uncertain. USDA Economic Research Service. Retrieved from https://www.ers.usda.gov/amber-waves/2009/june/federal-estate-taxes-affecting-fewer-farmers-but-the-future-is-uncertain/
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.