After you have had a chance to sit down with your family (and others) to discuss your succession plan, it is important to meet with your professional advisors to discuss implementation of the plan. Below are five categories of documents (or agreements) that will be helpful in putting your plan into action:
1. Buy-Sell Agreements. The Buy-Sell sets forth the terms under which owners will hold their interest while employed or associated with the farm, and also sets forth the terms and conditions under which an owner’s interest will be transferred upon the occurrence of certain triggering events such as death, disability, and/or termination of the owner’s relationship with the farm.
2. Estate Planning Documents. An owner’s will sets for the terms for which his estate will be distributed upon his death. His estate includes all assets owned by the owner at the time of death. The estate plan (will) should specifically address how farm assets as well as non-farm assets are to be handled at the time of death. In many farms, the active farm members do not want to have to involve their non-farm siblings in the day to day decisions that have to be made on the farm and what could be even worse is when the non-farm siblings have a financial stake in the operations. Properly prepared estate planning documents together with business planning agreements avoid these problems. Trusts may also be used in connection with the farmer’s estate plan. These trusts may be created during lifetime or at the time of the farmer’s death. In both cases, the documents should be structured with the farm succession plan in mind.
3. Gifting Program. With a properly structured gifting program in place, ownership of the farm may be transferred over a period of years from one generation to the next. Such a plan may reduce income taxes as well as estate taxes. A gifting plan also allows the new generation to have the ability to gain experience over time in operations, lender and vendor relationships, etc. while the senior generation is still available to help.
- The gifting program is usually used in conjunction with one of the previously discussed agreements.
4. Operating Agreements. The operating agreement (or bylaws) are what we like to call the Constitution of your business (important if you are choosing an entity to run the farming operations). This document sets out the rules that your entity must follow. Typically these documents correspond with the state business code, but can be modified to meet the individual needs of your particular operation.
5. Others. These are other documents that may be considered when putting your plan into action, but are not necessarily needed to implement your succession plan.
a. Employment Agreements.
b. Lease Agreements.
