Post on 12-Jan-2016
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Passing the Torch Without Dousing the Flame
Estate Planning for Closely Held Business
Owners
By:
Charles A. Redd
January 21, 2013
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Introduction
• The challenge• The ultimate objective• Need to address succession of:
– Ownership– Control– Management
• Different from estate planning
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Know the Players
• Owner– Issues: control, potential financial
insecurity, children not ready
• Spouse– Involved or not involved but must be
listened to
• Children– Desire? Ability? Relationships?
• Business itself
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Disposition During Owner’s Life
• Sale of the Business– To third parties– To the children
• Gifting strategies– Lifetime exemption amount gifts
• $5.25 million per donor
– Annual exclusion amount gifts• $14,000 per donee
– Separating ownership and control
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Securing Retirement Income
• Sale to grantor trust• Sale for private annuity• GRAT• Non-qualified deferred compensation
plan• Dividend/distribution policy• Long-term leases• Consulting agreements
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Active vs. Non-Active Children
• Conflicts between insiders and outsiders– Outsiders don’t like insiders
compensation and benefits and/or business decisions
– Insiders resent outsiders’ equity values benefitting from insiders’ efforts
• Conflicts among insiders• What is “fair”?
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Four Business Equity Disposition Options
• Transfer equally to all children• Transfer to active children; make equalizing transfers to inactive children
• Transfer to active children; make compensating transfers to inactive children
• Transfer equally to all children; include redemption provisions
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Implementation
• Trusts– Allocation to certain trusts– Dispositive provisions– Selection of Trustees– Administrative powers– Protection from outside threats
• Buy-sell agreements– Tax and non-tax considerations
• Marital agreements
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Conclusion
• Complex legal, tax, financial and emotional issues
• With careful, cooperative planning, a successful transition to the next generation can be accomplished
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