Taking Those First Steps in Succession Planning

Couple walking arm-in-arm down a country road. Courtesy of pixabay.com.

Let’s be honest.  No one wants to think about their own death.  However, if we flip the thinking, we can focus on how we help our loved ones in that transition period.  It is important to think about what will happen to your land in the future.  After investing heart, soul (and probably money) in your property, doesn’t it make sense to plan for a transition of that property to the next generation or to an organization of your choice? 

This isn’t a process you start on Friday evening and by dinner Sunday have completed.  It can take a while to assemble a succession plan especially if you need to do some homework.  But rather than not starting because it is so overwhelming, let’s look at the process as five steps.

  1. Collect Information.  As you begin this process, it is important to have an understanding of what you own.  Later in the process you will be speaking with potential heirs and knowing what you own will help you match potential heirs to property that best suits everyone’s goals.  In addition, even though the federal estate tax currently exempts the first almost $5.5 million in assets, not all states have such a generous exemption.  As you determine what you have, it will aid in knowing whether you have a potential tax issue.  While you are collecting information, it is also helpful to corral all documents in a central location.  This is your will, management plans, etc.
  2. Establish vision and goals.  Goal setting can be a very important part of the succession process.  Three types of goals exist.  Process-oriented goals are focused on what you want to achieve during the process of succession planning.  Short and long-term goals focus on the land and the transition of management.  These goals may be financial and/or nonfinancial in nature.
  3. Engage the family.  We’ve all seen the movies or television programs where the family is seated around Family walking in the woods. Courtesy of benandrews.com. the table and the will is read.  This event has all the drama of happiness at a windfall inheritance and the destruction of relationships when someone is left out.  The intention is for this type of drama to remain on the screen only.  It is important to get the family engaged in the management of the property early.  There are many ways for this to happen.  Family gatherings on the property are a great time to let future owners get a feel for the decisions that need to be made to operate the property.  Most importantly though, family members get a feeling of connection to the land.  Eventually it is critical to have a family meeting.  This family meeting looks different for different families but the intent is to convey information about the property and begin to think about transitioning management responsibilities to future owners. 
  4. Create succession plan.  Once all the information is collected and family members have met to discuss the property and its’ transition, it is important to start committing a plan to paper.  Decisions should be made as to who the future owners will be and how the property and management will transition from the current to future owners.  In this plan should be some timeline for transition so that future owners will have the knowledge necessary to take over when the time comes.
  5. Create estate plan.  The current federal estate tax laws allow over $5 million to transfer without taxes (with certain restrictions) and include provisions for portability of that exemption between spouses.  However, in certain states, there is a state “death” tax that is triggered at a much lower amount (under $1 million in some states).  Regardless of whether you live in one of those states, an estate plan is still the next step.  The estate plan involves putting in place formal documents that express your wishes for the distribution of your property.  Without some of these documents, state law will determine the distribution.  To create the estate plan you will need to meet with advisors who have the technical skills needed to produce documents that are legally recognized in your state.  At this point, if you want to consider a different ownership structure for the property (such as a trust, LLC, etc.), those changes can be explored. 

The process of planning for succession can be overwhelming.  The best way to approach the process is one step at a time.  The important thing is for you to get started.  There are resources available to assist you with this journey and many professionals are trained to help with specific parts of the process.  There is no right or wrong way to go about succession planning so jump in and get started!