Business Succession Planning
According to a recent national survey, 25-33 percent of family business shareholders who are nearing retirement haven’t completed any estate or succession planning other than writing a will. Some experts project that 75 percent of all family businesses will fail after the death of the founder. Business succession planning involves much more than just deciding how your assets will be divided after you die – it contemplates how the business will thrive after the founder is long gone.
A good business succession plan creates a road map for partners, heirs and successors to follow in the event of your death, disability or retirement. This plan can include a program for distribution and/or sale of business equity and other assets, repayment of business debts, purchase of life insurance policies to ensure liquidity, buy-sell agreements between partners and their families, division of responsibilities and authority to run the business among successors, and any other elements that affect your business assets. The plan usually contains guidance on how to determine the value of your business. It also must be flexible, recognizing that business, family and health situations are dynamic, and your plan must be easy to modify and amend.
Part of the business succession planning process involves an understanding of how the business will be taxed for estate planning purposes. Will the business cause the founder’s estate to incur significant estate taxes that must be paid within nine months of death or will there be sufficient liquidity from life insurance proceeds to negate the tax burden? Alternatively, does the founder control enough equity in the business so that taxes can be deferred under Code Section 6166 for up to 15 years? Can you mitigate the impact of the estate tax by engaging in lifetime gifts and sales of equity interests to your family, successors or trusts for their benefit?
To obtain assistance with your business succession planning needs, please call Wayne Zell at 703-218-2177 or email him at firstname.lastname@example.org.
- Legislation Introduced to Prevent Enactment of Valuation Rules Sen. Marco Rubio (R-Fla.) and Rep. Warren Davidson (R-Ohio) reintroduced legislation to prevent the IRS from enacting its highly controversial estate valuation discount proposed regulations introduced in August 2016. The proposed regulations were purportedly designed to stop abusive practices where valuation discounts were being used solely as an estate tax dodge on transfers of interests in closely held businesses. But the rules arguably went way beyond what the statute (Code Sec. 2704) originally intended. During the last Congress, similar legislation introduced by Davidson (H.R. 6100) and Rubio (S. 3436) attempted to stem the regulations by blocking funding. The bills garnered ... Read more
- Another Summary of the Valuation Discount Proposed Regs. Here is another excellent summary (from Bessemer Trust) of the new Section 2704 proposed regulations that severely limit the use of valuation discounts for transfers of interests in closely held entities to family members or trusts for their benefit. Please call us at 703-218-2177 or email us at email@example.com for assistance in making transfers prior to year-end, the expected effective date of the regulations. Read more
- Tax Extenders Package Includes Permanent S corporation Relief As you may know by now, on December 18, 2015, President Obama signed into law “The Protecting Americans From Tax Hikes Act”, which made permanent many expiring or expired provisions of tax law and further extended other provisions. Hidden among the provisions as a significant change affecting S corporations and their shareholders. S corporations generally pass through income, income tax liability and tax attributes to their individual shareholders. One major exception to this rule is where an S corporation was previously treated as a “C” corporation and converts to an S corporation. In that event, the S corporation may have to pay corporate tax ... Read more
- Premium Financing-Pros May Outweigh Cons Listen to Wayne M. Zell, Esq., discuss the pros and cons of using premium financing for life insurance. This technique is particularly useful for high net worth individuals and for businesses and non-profits seeking to retain key employees. http://www.blueprintforwealth.org/wp-content/uploads/2015/11/Premium-finance-insurance-11.2015.mp3Podcast: Play in new window | Download | Embed Read more
- New IRS Rules Expected Restricting Valuation Discounts For a recent, relevant summary of the anticipated IRS regulations restricting the ability to use valuation discounts, please see this August 7th New York Times article. Read more
- Merger Activity Does not Mean the Economy is Booming According to this New York Times article, the recent surge in M&A activity does not mean that the economy is doing great. Rather, it may indicate that trouble lies ahead for an overheated stock market. Read more
- M&A Activity Surging According to this recent KPMG survey, merger and acquisition activity is surging in the United States. Lots of liquidity and favorable financing terms are fueling the surge. Read more
- Buy-sell Agreements Now that you have your business succession plan in place, you will want to create an agreement that dictates what happens to the business and your ownership interest if you can no longer continue as an owner-operator. You and your surviving owners and managers will want to ensure continuity of ownership and management of the business after you are gone. At the same time, everyone will want to ensure that the cash flow needs of the business are not strained by funding your buy-out, while you will want to protect your family by leaving them fair compensation for your share ... Read more
- Buy-Sell Agreements Now that you have your business succession plan in place, you will want to create an agreement that dictates what happens to the business and your ownership interest if you can no longer continue as an owner-operator. You and your surviving owners and managers will want to ensure continuity of ownership and management of the business after you are gone. At the same time, everyone will want to ensure that the cash flow needs of the business are not strained by funding your buy-out, while you will want to protect your family by leaving them fair compensation for your share ... Read more
- Five Steps to Business Succession Planning You already may have resolved to create and monitor your business plan and develop a succession plan for your business. The first part of the resolution is fairly easy to achieve. After all, everyone with a business needs a business plan. But few of us really consider what would happen to our business – and our families, our employees and their families – if something happens to us. They might be left without adequate resources to survive or the ability to have jobs or continue generating income. The fear of something bad happening to our families or staff should be sufficient motivation for ... Read more