Succession Planning and Governance
Posted on: Jan 29, 2018
Western Landowners Alliance recently held a seminar called Legacy on the Land. The speakers covered a wide range of topics within the focus of succession planning. Howard Weiss from the US Trust spoke to the components of succession planning and governance.
Succession planning has many elements. Put as a formula, succession planning = farm and ranch management + ownership transition + estate planning.
There are many strategies for succession planning, but the three most common are: 1) single majority owner / operator; 2) equal active owners; and, 3) passive shareholders.
Governance differs from succession planning. Expressed in a formula, governance = business enterprise + family leadership + decisions and operations.
The most common considerations with governance structures are the roles various family members or unrelated third parties can play including managers, directors, and shareholders. Each serves a different role and has their own set of rules and responsibilities.
When thinking about future ownership of a property and related business there are many ways to structure the ownership interest. Three of the more common include: 1) outright transfer - fee simple ownership; 2) split interest (QTIP interest); and, 3) charitable interest. In order to transfer the land and the business into new ownership, owners have a long list of options. Four of the more regularly used transfer mechanisms include installment sales, lifetime gifts to heirs, buy-sell agreements at death of an owner, and business interest gifts in trusts (common with split interests).
Weiss’ overview of succession planning and governance summarizes some of the more common structures and considerations; however, there are countless combinations that can be utilized to meet the needs of current and future generations when considering succession planning for a working ranch.
If you are working through succession planning or considering transferring ownership of your property, we recommend that you start by outlining your goals personally and for the property and business to begin to identify the structure and tools best suited to fit your needs. After defining your goals, engaging an attorney and an accountant are prudent next steps. As brokers, we aim to provide you insight with options, structures, and combinations of agreements that may work, but your accountant and attorney are best suited to recommend what best fits your specific situation. Together as a team, we can navigate the transition while providing you comprehensive service. At Pfister Land Company, we pride ourselves on our ability to provide service beyond the listing and /or transaction phases of land ownership. Do you have questions? Give us a call!
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