Estate Planning In North Dakota

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Role of Goals

Knowing what one wants to accomplish is essential to developing a transition plan. The use of goals in establishing a transition plan and the process of creating goals are addressed on this page.

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Role or Purpose of Goals

  • Goals assure we know what we are working towards
  • Goals become the criteria by which to make decisions; that is, "among my alternatives, which alternative will help me achieve my goal as efficiently and effectively as possible".

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Forming Goals

A family business implies that several related individuals are working together to collectively own and operate economic resources and a business.  However, the process of forming goals so decisions can be made is a multi-step process that begins with each individual and culminates with family discussions and decisions. For example:

  • Each individual needs to identify their individual goals; often careful consideration of questions can help identify goals,such as "what type of tasks do I want to perform, do I want to assume the risk of owning a business, do I want to share ownership of a business, do I want to own business assets, do I want to share ownership of business assets."  Questions such as "when do I want to become involved in co-owning assets or a business and when do I want to terminate co-ownership of assets and a business" can help individuals specify goals for a transition plan.
  • After individuals have considered their goals, they need to communicate with others in the group to begin setting group goals. 
    • Perhaps each married couple needs to discuss their individual goals with one another and begin to formulate collective goals for themselves.  As the couple sets their collective goals, they will need to consider which of the individual goals can be incorporated into their collective goals and which of their collective goals may need to be revised to achieve their goals as a couple.
    • Thereafter, the persons who will be involved in the business will need to discuss their goals for co-owning a business and reconcile the business goals with their personal (e.g., individual and couple) goals.  Again, individual goals and couples' goals will underpin the group's collective goals for co-ownership.
    • The discussion may be expanded yet another time to include more persons who might be affected by the business arrangement, such as the off-farm heir who Mom and Dad are thinking about as they work with their other heirs in owning and operating the family business.
Setting group goals is a multi-step process.  It can be time consuming and challenging.  Differences will arise and unless the participants are willing to respect each others' perspective, the difference can become conflicts.  Open conversations for the purpose of getting to know one another are necessary.  This discussion will not be accomplished in one conversation; Each person will need an opportunity to refine their thoughts after hearing the ideas of their family members.
  • Writing forces clearer thinking; are members of the family willing to take the time to clarify their thinking by writing their individual and collective goals?
  • Reconciling differences among individual goals
  • Reviewing/revising goals as the situation changes
    • A transition plan is expected to be dynamic, rarely will a transfer of asset ownership and business ownership be completed in a single transaction; instead, there is an expectation that ownership of the business and assets will occur in stages over time
    • each time a portion of the asset ownership or business ownership shifts, the situation is different and the arrangement deserves to be reviewed
    • each time the external environment of the business changes, the internal situation also is being reshaped by these outside forces; again, there may be a need to review the overall transition plan
      • Need an example
    • every review of the situation will not result in a change in the transition plan; there may be times when the review reveals that the current arrangement is probably the best for the new situation

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Characteristic of goals

specific, measurable, time specific, address key area, written

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Types of business goals

  • earn a profit (income statement)
    • maximize after-tax income??
  • pay bills on time (cash flow)
  • gain equity (balance sheet)
  • assume reasonable risk (balance sheet)
  • safe work place
  • enjoyable work or work that aligns with personal interest, creativity and skills
  • social responsibilities:  ethical, environmentally responsible
  • opportunity for self-growth
  • transition business to another owner (there is no need for transition planning if the current owner does not intend to transition the business ownership, but instead is willing to sell the business assets)

This list may not be too important for a transition plan, but it might be helpful to introduce this list.  This list certainly is important for business planning, but ???

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Timeline or Goals necessary to develop a transition plan

In developing goals for a transition plan, the family probably wants the current owners to relinquish all or some of their ownership by certain times, that the new owners acquire, accept and act as owners by certain times; that there is adequate income; there is a match between contributions and income; etc.

  • when will new owners acquire ownership of assets
  • when will new owners acquire ownership and management of the business
  • when will current owners relinquish ownership of assets
  • when will current owners relinquish ownership and management of the business
  • might the answers to these questions take the form of a proposed timeline?

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Concluding Thoughts for this discussion about goals

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Steps to be discussed on subsequent pages

  • assess current situation with focus on who owns the assets and the business
    • recognize that there may be three or even four generations in some family businesses
  • assess the current situation with focus on control and profit relevant to risk exposure
    • assess ability to assume risk as a measure of risk exposure; a willingness to assume risk without an ability to assume risk may cause those with ability to assume risk to HAVE to be exposed to risk
  • set goal as to who will own assets business in the future -- addressed in previous list
  • intermediate goals as benchmarks to long term ownership goal -- addressed in previous list
  • arrange the business so earnings on owned assets align with value of assets; recognize how the order and form of payment influences risk exposure
  • arrange the business to assure taxes associated with transition of asset ownership are reasonable
  • arrange the transition plan to align with the ongoing business plan, as well as retirement and estate plans, if appropriate -- discuss how to align the plans when and where they interact/intertwine
  • need to regularly review and possibly update arrangements to reflect the ongoing transition of asset and business ownership
  • suggest some strategies or arrangements

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References

http://www.small-business-transition.com/business-succession-planning/

http://www.small-business-transition.com/business-succession-planning/family-business-succession.aspx

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http://business-transition.com/home 

http://www.pmfa.com/pmfa/personal/business-transition-planning/Pages/home.aspx

http://www.sva.com/family-business-services/business-transition-planning.aspx

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http://www.extension.iastate.edu/bfc/pubs/Successful%20transition%20ppt.pdf

http://extension.psu.edu/farm-business/guide/farm-trans

http://ohioline.osu.edu/bst-fact/

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http://www.the-farmer.com/story.aspx/plan/ahead/to/protect/farm/business/46981

http://hayandforage.com/hay/alfalfa/0110-farm-transition-goals/

http://www.larsonallen.com/EFFECT/Succession_and_Transition_Challenges_on_the_Family_Farm_for_the_Next_Generation.aspx

 

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