By Jacob L. Eaton, Esq.,
Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP
I have worked with several hardworking and dedicated family farmers over the years. Farmers often pride themselves in doing business on a handshake. However, undocumented business transactions and succession planning can add additional risk to business transactions and harm family relationships for a variety of reasons including the failure to consider all aspects of a transaction, faded memories recalling agreements differently, and, at times, the dishonesty of the other party to the transaction.
I heard a story of farmers that reminded me of the importance of succession planning and documenting transactions. A large family farm started nearly a century ago was managed and run by two brothers and their families. The families all worked on, and lived on, the farm. One of the brothers unexpectedly passed away, leaving three adult children and a wife, who was the kids’ step-mother. Without any agreements between the two brothers and without an estate plan for the deceased brother, the living brother, step-mother, and three kids of the deceased brother each retained attorneys and fought in court for their respective parts of the farm. This is a terrible outcome that resulted in family discord and a weakening of the financial health of the farm that could have been avoided with some planning.
This is an example of what can happen when a family fails to plan for the succession of the business. However, similar problems can arise from undocumented business dealings also.
You may not want to ask a close friend, family member, or long-time business partner to document an important business transaction for fear of offending that person. However, documenting a transaction not only protects you and the other party, but it makes clear your intentions in case the time comes that you or the other party is not around to honor the agreement and provide insight into the terms or intent of a particular transaction. Further, the rights of various parties can be changed by the fact of having a written agreement, and some agreements are simply not enforceable without a written agreement. A written agreement can help avoid disputes in the future with close friends and family by clarifying the agreement to avoid future misunderstandings.
Smart business and succession planning involve considering all angles of a transaction and documenting important transactions and informing the necessary parties of your intent. This means that:
Agreements among owners of a business regarding the operation of the business should be in writing.
Agreements regarding loans and contributions to the business should be in writing.
Succession plans concerning the disposition of assets and business ownership interests must be in writing including executing wills, trusts, and other estate planning documents and communicated to the upcoming generation.
Transactions with other businesses should be thought-through and in writing.
By taking these simple steps, you can protect yourself and your loved ones from misunderstandings and from the harm that can flow from a lack of succession planning.