How family land and an operating business pass together

Separate the land ownership question from the operating plan

In Minnesota, for example, an LLC under chapter 322C is legally distinct from its members, while other states differ.

Consider a planning example with land proposed for one entity and the operating business proposed for another. Ask counsel to review the intended owners, proposed lease, maintenance responsibilities and payment terms together.

Bring an asset inventory to that discussion. List the land, equipment, business interests and proposed ownership changes, alongside the family's goals for continued use of the property.

Choose the management structure and reserved decisions together

In Minnesota, for example, member management is the default unless the operating agreement specifies manager or board management, or equivalent language, except for the statutory nonprofit exception, while other states differ.

The operating agreement governs within section 322C.0110's limits. The chapter supplies rules for matters the agreement does not address.

Under the manager management defaults, managers decide company matters except as expressly provided in the chapter. A majority of managers may resolve ordinary course disagreements.

Default unanimous member approvals cover selling, leasing, exchanging or otherwise disposing of all or substantially all company property outside the ordinary course.

They also cover mergers, conversions, domestications, other extraordinary acts and operating agreement amendments.

A manager need not be a member. However, dissociation of a member who is also a manager removes that person as manager.

For the family discussion, identify proposed daily decisions and major decisions separately. Ask who should handle crop choices, equipment purchases, lease negotiations and a proposed sale of the land.

Distinguish distribution rights from management rights

In Minnesota, for example, a transferee receives transferred distribution rights without automatically receiving management rights, subject to section 322C.0504, while other states differ.

The distribution rights cover amounts otherwise payable to the transferor, in accordance with the transfer. The company need not recognize those rights before receiving notice of the transfer.

A transfer violating an operating agreement restriction is ineffective as to a person who has notice of that restriction when the transfer occurs. Distribution rights do not promise an immediate payment or buyout.

Before discussing a transfer with the family, ask counsel to identify the proposed recipient's economic rights, management role and applicable transfer restrictions.

Review direct land ownership before assuming a sale is inevitable

In Minnesota, for example, qualifying joint tenants or tenants in common may bring a partition action when at least one holds an estate of inheritance, for life or for years, while other states differ.

One or more qualifying owners may seek partition according to their respective rights. A sale may be sought if partition cannot occur without great prejudice to the owners.

A sibling's request for cash alone is not that statutory sale condition. These rules concern direct real property interests.

For a hypothetical family with one sibling working the land and others seeking income, ask each person to describe the desired outcome. Discuss payment timing, available cash and continued use before choosing a proposed arrangement.

Prepare one discussion covering assets, authority and income

Use these questions to organize a meeting with the family's legal, tax and financial advisers:

• Which assets and ownership interests are involved in the proposed transition?
• Who wants to work in the operation, and who prefers an ownership role without daily duties?
• What income does the older generation expect, and what can the operation realistically support?
• What proposed lease terms need review, including rent, repairs, duration and renewal?
• What training and delegation would help the proposed successor prepare?
• How would the family handle a request for cash during a difficult operating period?

Two related terms

Fair market value. For estate tax valuation, this is the price between a willing buyer and willing seller, neither under compulsion and both knowing relevant facts, rather than a forced sale price. An elected alternate valuation can apply.

Present interest. This is an unrestricted right to immediate use, possession or enjoyment of property or its income.

An Investor Advantage perspective on continuity

One presenter described generational continuity as a purpose of their work with families:

"to provide them a more vertically integrated way of doing business and to provide them a platform to um ensure the proper succession uh and transfer from one generation to the next of the family and and to ensure that continuity"

Common questions