Succession Planning for Farming Professionals
and Family Business Owners

Do You Need a Succession Plan?

You may if you can’t answer YES to each of the following questions.

  • Will your farm, ranch, or family business remain in the family for future generations?
  • Will ownership transition smoothly to the next generation and provide equitable benefits for all of your children?
  • Will your family operation provide financial security for you and lasting benefits for your dependents?
  • Will the estate tax and other transfer obligations force your family to sell the land to pay for their inheritance?

How It Works

Legacy’s Comprehensive Succession Solution

Integral Parts to Financial Security and Lasting Legacy for Family Business Owners

1

Financial

Security

Providing financial security for the owners and dependent family members.

  • Create retirement options
  • Diversify investments
  • Manage capital and debt
  • Maintain lifestyle
2

Ownership

Transition

Combining financial, tax, and estate planning strategies to design the most effective transfer of family business ownership to the next generation.

  • Choose entity structure
  • Explore financing options
  • Mitigate taxes on sale or transfer
  • Negotiate buy-sell provisions
3

Leadership Structure

Structuring the business and preparing family business leaders to manage the operation.

  • Adopt management structure
  • Define roles and responsibilities
  • Agree on compensation and benefits
  • Assess readiness; hire to start
4

Estate

Plan

Planning to efficiently and effectively transition the estate due to premature death.

  • Eliminate estate tax
  • Minimize transfer costs
  • Make equitable distributions
  • Provide income replacement

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A SYSTEMATIC APPROACH TO BUSINESS SUCCESSION PLANNING

Succession planning prepares the business, its owner, and the owner’s family for the day when the owner no longer participates in the operation. Without planning, that day can create crisis and conflict in both the business and the family, which clearly has adverse consequences both emotionally and financially.

EQUALIZING TRANSFERS TO CHILDREN

A business owner with more than one child often faces difficult decisions when planning for the business succession. Clearly, the owner’s emotions for his children and desire to treat all of them fairly can color the choices that must be made. Also, in many ways, the business is the owner’s legacy. 

ESTATE PLANNING FOR BUSINESS OWNERS

The goal of most business succession plans is to provide for an orderly transition of management and ownership when the owner retires. Unfortunately, this goal may be defeated if the owner dies before retirement. Thus, the business succession plan should also complement estate planning measures that minimize the impact an owner’s premature death has on the transition of business ownership and management.

FUNDING THE TRANSFER

One of the biggest obstacles to transferring ownership in a business is the ownership successor’s lack of funds. This can especially be a problem when the successor is the owner’s child whose available cash and credit are limited. Although the owner can finance a portion of the sale, many owners try to minimize the amount they finance.

RETAINING KEY EMPLOYEES

Unless they have capable successors and employees, many closely held businesses do not survive the departure of the owner. The chance of survival is further diminished if key employees leave instead of adapting to the new owners and management. Therefore, a business succession plan should contain strategies to identify and retain key employees.

THE ROLE OF BUY-SELL AGREEMENTS

Buy-sell agreements are important tools for preventing unwanted persons from becoming members of the ownership group, ensuring continuity of ownership, and providing a ready market for closely held business interests when an owner dies or withdraws from the business. Buy-sell agreements can also provide appropriate procedures for transferring business interests if an owner dispute arises.

TRANSFERRING OWNERSHIP TO FAMILY MEMBERS

An owner has several options for transferring ownership in a partnership or LLC. Many owners depend on business cash flow to meet their living expenses. These owners generally must choose a transfer option that generates enough liquidity (either when the transfer occurs or afterwards) to meet their income needs.

UNDERSTANDING THE OVERLAP BETWEEN THE FAMILY AND THE BUSINESS

Family businesses are unique in that the goals and relationships of the family overlap with those of the business. Unfortunately, this overlap is often the source of tension and conflict and can create obstacles that inhibit the succession planning process. Those involved in the business must recognize the dynamics in a family business so they can identify and implement procedures that create distinct boundaries.

VALUING CLOSELY HELD BUSINESSES

The issue of a business valuation will naturally come up during the course of most business succession planning engagements. The value of the business is important to the successor as well as the owner. If the business is being sold to an unrelated party, the valuation will help determine the purchase price. If the successor is the existing owner’s children or other related parties, the valuation helps substantiate the business’s value for gift and estate tax purposes.

Recent Blog Post

A Comprehensive Succession Solution

70% of California’s first generation farms, ranches, and family owned business will fail in the transition to the second generation. Of those that do survive, 90% will fail in the transition to a third. And of the few remaining after that, 96% will not transition to a fourth.

Locations

California Office
Legacy by Design, LLC
at Ryan Wealth Management
463 Century Park Drive
Yuba City, CA 95991

Washington OFFICE
Legacy by Design, LLC
at Ryan Wealth Management
1212 N. Washington Street, Suite 320
Spokane, WA 99201