Small Business & Family Farm Succession Planning

Protect Your Livelihood and Legacy

The day-to-day operation and management of a small business or family farm can be all consuming. But is important to take time to think about and plan ahead for what happens next. Someday, you may want to retire. Or you may suffer an illness or disability that forces you to. Your goal may be to pass the family business or farm down to your children or grandchildren. Maybe you are building up your business to create a future income stream for yourself and loved ones. Or maybe you intend to sell the business to create a family financial legacy.

Depending on your personal circumstances and goals, a succession plan can be used to:

  • Protect the value of your business or farm from your personal creditors or the costs of long-term care
  • Provide a future income stream from the business or farm for yourself, your spouse, or other family members
  • Designate successor managers to carry on the business or carry out your plan to sell or transfer the business
  • Avoid probate – the probate process works well to liquidate and transfer assets, but is not designed for the continuing operation of a business or farm
  • Minimize income, estate, and gift taxes – tax minimization may be an important consideration if your business or farm has appreciated in value or is worth more than $10 million
  • Avoid litigation between family members, co-owners, and other potential successors
  • Document your plan to ensure that the transfer or sale or your business or farm will be completed on your terms

There are many options available to plan for the succession of your small business or family farm.
The most common tools include: (click on the arrows to learn more)

Limited Liability Entity Ownership

If you operate your small business as a sole proprietorship or own a farm or other real estate in your personal name, creating a limited liability entity may be an important step in your personal and succession planning. Operating your business or farm as a Limited Liability Company (LLC) provides a layer of protection between business creditors and personal assets, and vice versa. It also permits you to easily designate successor managers and provide for non-probate transfer or sale of your business or farm.

General Estate Planning Trust

Small business owners and family farmers often use Trusts as a primary succession planning tool. With a Trust, you can ensure the continuing operation of your business in your absence, provide an income stream for family members, transfer business ownership to family members or trusted employees, specify terms and conditions of sale, avoid probate court oversight, minimize estate taxes, and more.

Medicaid Asset Protection Trust (MAPT)

A Medicaid Asset Protection Trust can be used to protect the value of your business or farm from Medicaid spend down if you or your spouse require long-term care and protect your property from Medicaid Estate Recovery state payback after you and your spouse have passed. You can combine an LLC business structure with MAPT Trust business ownership to reserve the rights to manage, control, and receive income from the farm or business while enjoying the significant asset protection benefits.

Ohio Legacy Trust

An Ohio Legacy Trust can be used to protect the value of your business or farm from future general creditors. This is an effective tool to build wealth or a legacy for future generations. You can be an income beneficiary of your own Ohio Legacy Trust while protecting the value of your business or farm.

Beneficiary Designations

If your small business or family farm is operated as an LLC, S-corporation, or C-corporation, future ownership can be transferred to your spouse, children, or others by beneficiary designation. If you own real estate assets in your personal name, beneficiary designations are also an option to transfer ownership when you pass. Beneficiary designations are a simple and inexpensive means of transferring business or farm interests to your loved ones or trusted successors.

Buy-Sell Agreement

If you co-own your small business or farm with others, a Buy-Sell Agreement may be an important component of your succession planning. A Buy-Sell Agreement is a legally binding contract for the sale of a business or business interests when an owner dies, retires, suffers a disability, or otherwise leaves the business. A cross-purchase agreement enables remaining business co-owners to buy the interests of a withdrawing or deceased owner. Buy-Sell Agreements can also be used to facilitate sales to family members or key employees. A written agreement all but guarantees a buyer for the business, establishes the price and terms of sale, and prevents future conflicts and litigation.

Life Insurance

Life insurance is an often-overlooked succession planning tool. Life insurance policy proceeds can be used to fund a Buy-Sell Agreement, sell your small business or farm to family members, pay estate taxes, provide a source of inheritance for children who are not interested in the family farm or business, and more.

No matter how big or small your family farm or business, succession planning is an important part of your estate plan. There are succession planning options available to fit every business, farm, family, circumstances and budget.

Growing up, I had no idea that someday I would want to be an estate planning attorney. I was raised in a rural Iowa farming community and spent much of my summers at county fairs showing and judging livestock. I was an active 4-H member and President of the local FFA chapter. In college, I studied agribusiness and animal science at Iowa State University. Both my grandmother and my mother were small business owners. After he retired from John Deere, my dad managed a small manufacturing business, and my brother co-owns a construction company. I’ve carried on the family tradition by being a small business owner myself. With this background, it should come as no surprise that I enjoy working with small business owners and family farmers to protect their livelihood and legacy.