South Florida FPA Conference 2017 Business Succession Planning Presenter: Frederick H. Hoops Vice President-Senior Wealth Planner Comerica Wealth Management
Welcome o The Importance of Succession Planning o Business Succession vs. Management Succession o Options as a Business Owner o Techniques for Gifting a Business o Planning for Life after Owning a Business
Question of the Day It is estimated that some 24 million Americans own a closely-held business. What becomes of a company when its owner(s) step down or are no longer around to run it? 3
Reality Check ◦ 88% of current family business owners believe that the same family will control their business in five years, but statistics don’t agree: Source: Family Business Institute 4
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Succession Planning - It’s More Than Just Saving Taxes o Provides financial security: o for the owner after retirement o for the family in the event of a premature death or disability o Address the issue where some children would like to work in the business and others would not o Limits ownership to only those individuals acceptable to all owners o Considers transfer of ownership and the transfer of management Comerica does not provide tax advice, please consult your tax advisor regarding your specific situation. 7
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Steps to Create Successful Management Succession o Identify high-potential individuals and allow time for development o Provide feedback on a regular basis o Look for training and development opportunities o Provide opportunity to demonstrate leadership skills o Let potential management successors know what you are thinking in terms of taking over the business o Create mechanisms that will encourage key employees to want to stay involved in the business 9
Your Options as a Business Owner o Sell your business during your lifetime o Have your estate sell your business after you’ve departed o Transfer your business to your heirs during your lifetime o Transfer your business to your heirs after you’ve departed 10
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Gifting a Business to Your Heirs During Your Lifetime o Battling the gift, estate, and income tax is a significant concern for many business owners when gifting to their heirs during life o Techniques for gifting your business to your family in a tax-efficient manner: • Family limited partnership (FLP) • Limited liability company (LLC) • Grantor retained annuity trust (GRAT) • Intentionally defective grantor trust (IDGT) Comerica does not provide tax advice, please consult your tax advisor regarding your specific situation. 12
Issues in Transferring Your Business o Personal or familial conflicts o Management team capabilities / loyalty o Business acumen of heirs o Financial implications of succession planning 13
Proposed Treasury Regulations o Significant changes to the valuation of interests in family-owned business entities is possible in 2017 o May limit the use of discounts that currently minimize taxes o Estate o Gift o Generation-skipping taxes o May change the treatment of transfers of interest in a family controlled entity that occur within 3 years of a decedent’s death o IRS to re-determine the value of transferred interest o Additional estate tax may be the result o May limit certain planning opportunities with attribution of ownership rules o Recommendation: Identify any steps that may be taken before rules are finalized 14
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Increasing the Odds of a Successful Transfer ◦ Succession plan must be in writing and up-to-date ◦ Trained management team ◦ Cash flow analysis to facilitate better decision-making ◦ Selection of next owner(s) ◦ A funded buy/sell agreement ◦ Understanding of the value of the business ◦ Work with a knowledgeable team (CPA, Attorney, Wealth Planner) ◦ Plan for life after owning a business 16
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What May Happen Without a Buy-sell Agreement o Family members may be injured and/or o Creditors may become worried and perplexed by the loss of income and net demand immediate payment because worth earned by the business there is no continuation plan in place if something were to happen to you or o The value of the business may decline your other while waiting for a buyer to appear partners/members/shareholders o The business may be forced to sell o Debtors may become emboldened and assets upon the occurrence of a not pay if you or your other triggering event in order to redeem the partners/members/shareholders were no interest of a departing longer involved in the business partner/member/shareholder o Disputes could arise between o Your partners/members/shareholders partners/members/shareholders may lose the good will tied to the concerning the value and terms of any business during the period of transition purchase following a triggering event 18
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