Business Succession Planning
Many of our clients are also small business owners. As we work through estate planning objectives, questions arise as to passing such ownership to succeeding generations or employees. The wide array of considerations in this area include planning for the continuation of your business and building in contingencies in the event of a client’s retirement, disability or death. Whatever a client desires, it is crucial to have a plan in place to provide for smooth transition.
From an estate planning perspective, transferring assets to the younger generations as early as possible allows our clients to remove future appreciation from estate thus minimizing estate taxes. On the other hand, we have clients who are uncomfortable with such an approach. Therefore, we employ strategies to transfer ownership without ceding control such as: (i) placing business interests in a trust, family limited liability company or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control; (ii) transferring ownership to the next generation in the form of non-voting stock; or (iii) establishment of an Employee Stock Ownership Plan (ESOP or employee stock purchase plan).
Another unique challenge we often see in practice is that the older and younger generations have conflicting interests and financial needs. Fortunately, several strategies are available to generate cash flow for the owner while mitigating the burden on the younger generation. They include: (i) an installment sale of the business to children or other family members; (ii) a Grantor Retained Annuity Trust which allows the owner to obtain a variety of gift and estate tax benefits while enjoying a fixed income stream for a period of years and at the end of such term, the business is transferred to the younger generation; and (iii) an Installment Sale to an Intentionally Defective Grantor Trust – this is a complex transaction that allows an owner to sell a business on a tax-advantaged basis while enjoying an income stream and maintaining control during the term. Once the installments payments are complete, the business passes to the younger generation.