Step Seven: Wealth Preservation Planning

The sale of a business, like winning a race, generates cash — cash for the now former owner, his family and (to a limited degree, at least with planning) the IRS. Few owners have much tolerance for the share the IRS takes from sale proceeds. That's why thousands of business owners preserve wealth for themselves and their families through the proactive design and implementation of wealth preservation strategies before they transfer ownership. You too should design and implement these strategies well before the actual transfer of the business. It is far easier to transfer wealth under our gift and estate tax system in the form of a business interest than when that wealth has been converted to cash via a lifetime sale, or valued as if it were cash — at an owner's death.

How does this affect you?

Running a business, like racing, can be hazardous to your health. If you hit the wall, will your loved ones be protected? Owners who ignore this step of the Exit Planning Process are the darlings of the IRS. Proper planning may permit the transfer of millions of dollars of wealth from an owner to his or her children by taking advantage of existing estate planning tools and techniques. In fact, this is the easiest step of the Exit Planning Process — the transfer of millions of dollars of wealth to a younger generation, provided the owner takes action before the business is converted to cash. The ability to take the necessary action is also contingent upon your other exit objectives (Step 1) and obtaining an appropriate value for the ownership interest (Step 2).

This is the type of planning that owners need but don’t usually do. While the natural focus is transferring your business for top dollar while you are alive and kicking, we are also interested in retaining as much money as possible for your loved ones — a group we do not assume includes the IRS.

Resources

Library

Transferring Wealth to Children: A Primer for Business Owners White Paper – Successful business owners often wrestle with the issue of how to pass wealth to children in a way that minimizes — legitimately — their tax bills. This White Paper explains to owners how such a transfer can be designed, as well as why fixing their own financial objective precedes any transfer, and how to determine the amount (and if that amount is too much) to be transferred. This white paper also uses a case study to illustrate the plan design and includes an explanation of GRATs. "The Completely Revised How to Run Your Business So You Can Leave It In Style." The Exit Planning Review™ eNewsletter You can request these materials by contacting BEI.

Team

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The Bottom Line

Your estate plan must be consistent with your business and personal exit plan. Most estate plans are relatively straightforward, standard documents that ignore the particular needs of an owner contemplating the transfer of his or her business. Work with your existing legal counsel as well as your financial and insurance advisors to make certain your estate plan addresses your personal and business objectives.

If you need help finding advisors who can coordinate the business and personal Exit Plans, click here to access our Network of Exit Planning Advisors.

If you need help finding advisors who can coordinate the business and personal Exit Plans, click here to request information from BEI's Network of Exit Planning Professionals™.

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