Succession Planning Glossary

Knowledge level: Introductory

A succession planning glossary of frequently used terms.

Active: Family members working on the farm or in the agribusiness.

Beneficiary: A person named in a will to receive certain property of the testator. Also, a person who receives income or assets from a trust. A person who benefits from the existence and operations of a trust.

Bequest: Asset or assets passed to an heir or heirs by action of a will (to bequeath is the act of passing assets by action of a will).

Bill of Sale: A document recording the transfer of personal property.

Buy-Sell Agreement: A formal agreement facilitating ownership transfer based on triggering events—death, disability, dissolution or divorce. Common provisions of a buy-sell agreement include: valuation, applicable discounts, terms, conditions and restrictions.

Conservation Easement: A specialized easement used to convey specific property rights (typically residential or commercial development rights) to a land trust, thus restricting the future use of the real estate.

Contingency Plan: Provisions in a comprehensive succession plan that mitigate the financial devastation caused by untimely death, disability and/or deteriorating health

Contract: An agreement between two individuals or entities about how to administer something to happen in the future (Example: life insurance company agrees to pay an amount to a specified person upon the death of the insured).

Credit Shelter Trust: A trust established to use the applicable estate tax exclusions (credits) of both spouses (sometimes referred to as the ”B” trust).

Custodian: A person named (often by court action) to care for a person who is not able to care for themselves.

Deed Restriction: Instructions contained in a deed, which limit the future use or transfer of real property (Example: Conservation Easement or Reversionary Interest).

Deed: A document recording the transfer of real estate.

Dispute Resolution: A formal process for resolving disputes—may involve a facilitator, mediation or arbitration.

Easement: A document that records the transfer of a real property interest, such as the use of specified portion of the property.

Encumbrance: Any recorded real property interest, which would reduce the ability of the holder of title to use or convey the property (Examples: mortgages or easements).

Entity Ownership: Assets held by an entity, such as a General Partnership, Limited Partnership, Corporation, or Limited Liability Company.

Estate Tax Exclusion (credit): A portion of a decedent estate not subject to estate tax (sometimes referred to as a “credit”).

Estate Tax: A tax (federal and/or state) on inherited assets.

Estate: Anything owned by a person at the time of their death.

Equal vs. equitable or “fair” distribution: In farm transition or estate planning, an “equal” distribution means that property is divided in equal percentages among heirs. In an equitable or fair distribution, property may be divided based upon the contributions and needs of the heirs; the monetary values of the shares may be different.

Fair Market Value: The dollar value that a willing purchaser may pay for an ownership interest from a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts.

Grantor: The person who conveys assets to a trust (aka “Trustor) or to others by will (aka “Testator”) or by a deed.

Gross Estate: All the assets owned by a person at the time of their death.

Guardian: A person named (typically in a decedent’s will) to care for minor children of the decedent.

Heir: One who inherits or is expected to inherit an asset.

Inactive: Family members not working on the farm or in the agribusiness

Income Beneficiary: One who receives income from assets held in trust.

Mentor: A senior or experienced farm/agribusiness owner who advises, counsels or guides an inexperienced, new or aspiring agripreneur in the aspects of business growth and development.

Power of Attorney: A document instructing another about how to act on your behalf, if you are unable to take actions for yourself. Examples include: Financial Power of Attorney, Health Care Power of Attorney, Special (or limited) Power of Attorney, and General Power of Attorney.

Succession: The process of transitioning ownership from one generation to the next. The elements of a comprehensive plan for succession include: financial security, management continuity, ownership transition, leadership development and estate planning.

Successor: One who will carry on the business into the next generation.

Trust Property: Assets held in trust.

Trust: A document instructing someone (trustee) to care for an asset or assets and distribute the asset or assets to someone else at a predetermined future time (Example: At my death, hold and care for my farm property, pay the distributable income to my spouse during their lifetime, then to my children during their lives, and distribute the trust assets to my grandchildren when all of my children are deceased).

Will: Sometimes know as “last will and testament” is a written document expressing how and to whom an individual’s assets are to be directed at the time of that person’s death.

This glossary has been compiled from the following sources:

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