Getting Things Started
Nicole Lane Erceg
Organizing a few legal documents now can avoid a business train wreck later.
When there are cows to feed, fences to build, breeding decisions to make and a chore list a mile long, the last thing on any rancher’s mind is legal affairs. In fact, when there are live animals to deal with, office work sometimes just doesn’t get prioritized. However, paperwork is an important part of profitability in today’s cattle business.
Just like managing risk when building a herd health program or purchasing futures contracts, having the correct legal documents put together, organized and easy to find can make unforeseen events or hard times significantly easier.
Tiffany Dowell Lashmet, Agricultural Law Specialist with Texas A&M AgriLife Extension, says the biggest mistake she sees ranchers make in organizing their legal documents is not doing it at all.
“If you spend just a little bit of time and money on the front end to get things done correctly and get your operation organized, it can save you a lot of trouble on the back end,” she says.
Lashmet says there are a few items every ranch owner should have on hand:
- Estate and succession plan. Determine who will take over if and when the ranch owner/manager is deceased. This includes a will, powers of attorney and healthcare directive, as well as anything someone may need to pick up and run the business tomorrow.
- Written lease agreements. For anyone leasing land or livestock, Lashmet recommends having a lawyer help create a template document that can then be tweaked for different needs.
- Financial documents. This folder should include profit/loss statements and bank account info, as well as a list of current assets and where they are located.
For ranchers who already have these documents handy, Lashmet asks them to consider when the last time was that they were updated. A will that was drawn up 15 years ago may not be applicable to today’s family and business. She recommends reviewing all major agreements, financial documents and the estate plan once a year.
“A quick glance once a year — my family always does it in January — can help you find anything that needs to be updated,” she says. “It doesn’t have to be an intense process, just flip through the documents and make sure everything is there and that it’s all up to date.”
Lashmet also says that these need to be reviewed and updated any time a major life event occurs. If there is a death, divorce, new family addition or the purchase or acquisition of substantial property, then those documents may need to be updated.
The handshake mistake
It’s not uncommon for deals to be made on a handshake and a man’s word even in today’s modern cattle business. However, this can be a recipe for disaster. Lashmet strongly encourages cattlemen to create a written document for all agreements — no matter how old or new the deal struck may be.
“That written contract can protect both parties,” says Lashmet. “And it can protect a friendship. It doesn’t have to be an adversarial process. It’s amazing the type of issues that can pop up that you never foresee ahead of time. A written document can help deal with those.”
Lashmet says she’s worked with people who’ve lost long-term leases because there was no written contract, and has seen families who haven’t known where the crops are stored to sell when the manager passed away. Putting things on paper, especially in a well-organized system, can save both ranchers and their family members heartache down the road.
Where to begin
For ranchers missing all the documents on Lashmet’s checklist, she recommends starting with an estate plan and working down the list from there. She says an estate or transition plan will require working with a lawyer to put together a plan and all the important paperwork that goes along with it.
“I think an estate plan is so important for folks to have because you never know when something can happen; I would start there,” says Lashmet. “Think about the ranch as a business. Who is going to take over when I’m gone? How is that going to be set up? What do we need to do to have that ready?”
After an estate plan, Lashmet says to focus on a good lease agreement. From hunting leases to liability releases, she says that a lawyer can easily help put those together for a one-time fee and then the document only needs to be updated if the law changes.
From there, she says financial records need to be completed, but this can easily be done with the help of an accountant.
“Your accountant will be very helpful in determining exactly what needs to be done and the documents you might need,” she says.
Getting the right help
To make sure things are done right, Lashmet recommends getting a lawyer and the ranch accountant involved initially. Once the documents are created and well filed, unless there are law changes or major family events, the cost of maintaining the files is relatively low. The upfront will always be minor compared to the costs that could be incurred if a legal dispute should occur.
“A lot of times, people don’t want to spend the money to get a contract written or work with a professional to put together their affairs,” says Lashmet. “I promise, if you end up in a legal dispute, you will blow through in a week what that originally would have cost you.”
When looking for a lawyer to get started, Lashmet recommends asking for recommendations from others involved in the industry. She says they don’t have to be an agricultural lawyer, but that can be an added benefit.
“It’s nice if they know something about cattle if you’re coming to work with them and that’s your whole life,” she says.
Get an accountant involved to put together the financial records, too.
Not everything has to be done with professional help, however. For example, Lashmet shares that in Texas, Powers of Attorney can be drawn up using a statutory form available online. However, she strongly discourages doing official wills or other highly important documents through online aid.
The final benefit of putting in the time and effort to create and organize these documents is peace of mind, Lashmet says.
“There are times when something pops up and you need these kinds of documents yesterday,” she says. “If you’ve got them in order, it saves the hassle and stress of trying to find them at the spur of the moment.”
Check These 3 Files Every Year to Stay on Track
Estate and succession plan
This includes a will, powers of attorney and healthcare directive, as well as anything someone may need to pick up and run the business tomorrow.
Written lease agreements
For anyone leasing land or livestock, Lashmet recommends having a lawyer help create a template document that can then be tweaked for different needs.
Financial documents
This includes profit/loss statements and bank account info, as well as a list of current assets and where they are located.
“Getting Things Started” is excerpted from the January 2018 issue of The Cattleman magazine.