The Need for a Buy-sell Agreement

Please read carefully: Wills may be changed on a whim. Read again.

In my years of working with family businesses, few things have caused more tears, fears and resentment, more forced liquidation of business assets and estrangement of family members than surprises at the reading of a will.  And wills are often changed "late in life" or when emotional triggers override promised or logical decisions.

As one mother on the farm shared,"I had no idea that my husband changed his will…until he died."

A farming son who worked on and managed the farm business for 30 years with his parents shared,"I always thought my father's word was good. I found out it wasn't."

Remember, if the individual signing the will is of sound mind, changes legally made are legal. With asset transition, what is legal is what exists.  In my opinion it is crucial that you have legal documents outside of the will that ensure the integrity the family business continues.

I've listened and learned from many attorneys and CPAs who work hard to prevent estate problems and insure many personal and business outcomes. These experts share that creating legal business entities and acting as that entity are important for many reasons.  (An entity might be a legal LLC, Corporation, Partnership, etc.)  This allows the business owners to have several benefits including:  limited liability protection; incremental transition by purchase or gifting of the business asset to those who you wish to own and those who deserve to own; and the capability to create a legal buy-sell agreement of assets within the entity. You need good legal advice to get this done right!

Here's what you'll often find in a strong buy sell agreement:

1. What triggers the buy-sell and transition of assets?  (death, disability, drugs, divorce, disillusionment, disaster, debt, disaster, etc.)

2. Who has the option to buy and in what order?  (Look carefully at the initial entity documents to see what is already included regarding asset ownership and transition.)

3. How will the assets be appraised? (Appraiser needs to know your goals for future ownership.)

4. Define the payment terms (length of time to purchase) and interest rates. (Have these clarified and tied to the goals of the future and reality of changing values. You need good accounting advice.)

5. Establish funding for the payments.

6. How can this buy-sell document be amended?

7. Signatures required. (From all current owners and as you add new owners. I also encourage the understanding of this document and inclusion of spouses with their signature.)

If you are a sole proprietor of business assets and want the integrity of the business to continue under specific ownership and management of named individuals, you need to meet with your accountant and attorney. They will have transition options for you.

If it is your goal for the business to continue, how you legally prepare for the transition of those assets outside of a will must be a priority.  You will need a good advisory team because there is work involved…and perhaps emotions, too. But it is worth the journey as you chose to honor your family members by doing the business right.

Jolene Brown is a farmer, professional speaker, author and champion for the family owned business. She's from West Branch, Iowa, USA, and travels worldwide sharing leading-edge best practices that have the power to increase productivity, profitability and peace of mind. Her passion combined with her fun-filled spirit and valuable information brings humor, hope and helpful ideas to the people of agriculture. For more information and to check out her speaking availability, contact her at Jolene@JoleneBrown.com, www.JoleneBrown.com

Full Rights Consent.  Jolene Brown LLC, West Branch, Iowa, USA, maintains full rights to utilize the content and/or format of all materials submitted by her for the www.PinkTractor.com website in any future speaking, writing, audio, video or electronic format.

Copyright © 2017 Jolene Brown, LLC. All Rights Reserved

 

related topics: farming, agriculture, succession

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