I recently trekked to the outpost of Pierre, S.D., along the beautiful Missouri River, to facilitate a transition management panel made up of producers, attorneys and financial representatives at the South Dakota Bankers Association’s Agricultural Credit Conference. A question from one of the bankers was a considerable topic of discussion amongst panelists. “How do we, as the younger generation, get the conversation started concerning transition and estate planning with mom and dad, or the grandparents?”
One of the producers on the panel put it very succinctly. He suggested, sarcastically, to his parents and grandparents that they better have a written estate and transition plan or they will end up selling their assets to their favorite neighbor at a discounted value! One of the professionals chimed in and stated that without documented estate and transition plans, the winners are usually not the family members, but Uncle Sam in the form of taxes, and accountants and lawyers in terms of fees because of the lack of organization and communication.
All panelists indicated that estate and transition planning is a process. Be careful of the professional who suggests too many complicated options without first exploring goals of the parties and stakeholders involved. Too frequently, the tools, such as business organization types like LLCs, corporations or partnerships, are suggested before there is a sound understanding of where the business has been and where it is destined in the future.
One of the professionals on the panel indicated that a properly strategized and executed estate and transition plan can allow one to create their future and destiny, building upon the legacy fostered in the past generations. Failure to do so creates a very reactive, emotionally charged transition, often where logic is thrown out the window.
All panelists were in agreement that the foundation of a sound estate and transition plan is a good set of financial and business records that are transparent and speak to the business and management’s needs, so professionals can utilize their time more efficiently. This means determining true profitability not from tax records, including a Schedule C or Schedule F forms, but utilizing accrual-adjusted statements with balance sheets that reflect cost and market value.
The panelists concluded that there is no cookie-cutter template and that each plan must be customized to meet the needs of the generations, partners and stakeholders involved. Family business meetings need to be held off-site with agendas and minutes, creating a paper trail as a means of communication for all parties.
Estate and transition planning is like Lewis and Clark’s journey up the Missouri River. It needs to be planned and executed with a little assistance from professionals to help navigate through the perils of the journey.