Stinson.com © 2013, Stinson Morrison Hecker LLP Passing the Torch Without Dousing the Flame Estate...

Stinson.com © 2013, Stinson Morrison Hecker LLP

Passing the Torch Without Dousing the Flame

Estate Planning for Closely Held Business

Owners

By:

Charles A. Redd

January 21, 2013


Introduction

• The challenge• The ultimate objective• Need to address succession of:

– Ownership– Control– Management

• Different from estate planning

2


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

3


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

4


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

5


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”?

6


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

7


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

8


Conclusion

• Complex legal, tax, financial and emotional issues

• With careful, cooperative planning, a successful transition to the next generation can be accomplished

9

Stinson.com © 2013, Stinson Morrison Hecker LLP Passing the Torch Without Dousing the Flame Estate...

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