Planning for Incapacity and Unexpected Events

Most ranchers and farmers are prepared to face storms, drought, or even market downturns. But very few are ready for the one event that can bring a thriving operation to a halt overnight: incapacity.

Whether due to aging, illness, injury, or a sudden accident, losing the ability to manage a ranch, even temporarily, can have absolutely devastating consequences. If you have not taken the initiative to create a plan in the event of your incapacity, then there is no plan in place, which means courts will intervene, family conflict can erupt, and the land, livestock, and legacy you have worked so hard to build can quickly start to unravel. This is why you must act before incapacity strikes.

Lawyers often rely on two primary tools to create a plan for incapacity: Durable powers of attorney and living trusts. For those in the agricultural business, these tools may or may not suffice. As you have now read in the prior two chapters, agricultural operations can become much more sophisticated in planning documents, and a business entity with a proper operating agreement or shareholder agreement can override a power of attorney or trust and direct control and buyouts when an owner becomes incapacitated, quits or retires.

Often, the simple estate planning incapacity tools of a durable power of attorney and living trust are created for the rancher or farmer in addition to the business documents, so regardless of whether or not your operation has a business entity with clear direction, it is still important to understand how these estate planning documents work.

A Durable Power of Attorney allows you appoint someone you trust to handle your financial and legal affairs if you cannot. For ranchers, that includes signing contracts, paying bills, managing employees, and making business decisions. It can also allow a family to apply for Medicaid on your behalf or move you into a nursing home. The point of the Durable Power of Attorney is to set up a default system which names your preferred order of decision makers – who do you want to control your finances if you cannot? If you do not put this preferred system in writing, the court will be left to rely on the state default (probate) rules, which may require that the judge appoint your son who lives in San Francisco instead of your daughter who has helped you for decades running your cattle.

A revocable living trust holds and manages your assets including your ranch, livestock, and equipment and names a trustee (trust lingo for “manager”) to step in if you become incapacitated. A revocable living trust is designed to keep your affairs private and out of court, while ensuring your hand-picked successor takes the reins. A trust can be more secure than a power of attorney because it clearly controls any assets titled to the trust. Most often, however, we prepare both a revocable living trust (to control the management of trust assets) and a durable power of attorney (to cover non-trust issues, such as signing a contract with a nursing home or a moving company). If you think your concerns are covered because you have added your trusted child to your bank account, then please read the chapter in Alex Kincaid’s book titled Plan Now, called “Redneck Estate Planning.”. Plan Now also delves into much more detail about wills versus trusts, irrevocable trusts, and other issues that surface in general with respect to estate planning. It is an excellent resource for anyone who would like additional information about estate planning in general, and it is also available as a free download on www.alexkincaidlaw.com!

In sum, some basic estate planning tools can allow you to stay in control by choosing the right person to continue the operation in the way you would want it run. Without the right plan in place, Idaho’s default laws are triggered and take effect, meaning the court will appoint a guardian or conservator. This could easily be someone you would never have chosen yourself!

I once worked with a family where the rancher had no estate planning in place at all. The rancher suffered a stroke, and without a power of attorney or trust, the court assigned one of his children to manage the ranch. The child failed to pay bills, ignored critical obligations, and ran the operation into the ground. Eventually, the ranch was no longer viable. What was once a working piece of family history became a financial and emotional disaster. All of this could have been avoided with a few simple, well-thought-out documents.

In addition to personal legal documents, business entities play a critical role in ensuring seamless operations. Some examples include:

• A limited liability company (LLC) can name a successor manager or backup officer;
• A corporation can have a clear chain of command such as a vice president or a designated operations lead;
• A trust can name successor (backup) trustees, who are empowered to act immediately if the primary trustee (you) becomes incapacitated.

The goal is simple: create a system that does not fall apart when you are not there. Planning ahead empowers you to remove uncertainty by empowering the right person to act without delay and without interference from the courts or family members with conflicting interests.

Planning for incapacity is not pessimistic; it is responsible. It is what leaders do, and it is what ranchers do when they care about the future of their land and their family. You may not be able to predict the future, but you can prepare for it. And in doing so, you ensure that your ranch, your legacy, and your life’s work continues.