SUCCESSION PLANNING CAN GET YOU THE BEST TAX ADVANTAGES

Planning for the transition of your interest in a family business may be the most challenging issue you face. There are many important and strategic steps. Maintaining a (high) business value is key, yet so is the duty to carry out your personal wishes. Succession planning is strategic mix of both economic and emotional considerations…and the from the resulting decisions unique and beneficial tax situations emerge.


Sooner Rather Than Later

The succession issue should be dealt with sooner rather than later simply because of economic and emotional issues. A thorough plan takes time to develop and implement. Succession planning is not to be rushed. Doing it may be frustrating, yet not doing it can be financially devastating.


If you decide to sell to nonfamily, the sale should take place while you are still capable of providing consulting services. If you become disabled or die before the business is sold to nonfamily, it is likely that the value of the business will be diminished, the tax consequences will be greater, and ultimately your wishes may not be able to be honored.


Financial Needs of the Business Owner

For most family business owners like you, the business is their most valuable and their most illiquid asset. Your business is the primary source of economic and emotional support for your family…and will likely be the source of funds to pay estate taxes, debts, and administration expenses, as well as to pay for the support of your surviving spouse and dependents. Without proper planning, your business may have to be sold to provide financial support for your family and to pay estate taxes, even if your family would have preferred to keep the business.


Issues You May Be Facing

Should I sell the business during my lifetime?

Should the business be continued after my death?

Who will control the business after I die?

Who will own the business after I die?

Are the objectives for my business consistent with my estate plan?

These issues are important, the answers critical, and the decisions have different tax consequences.


Owner Requirements

It is essential that your income needs (and your spouse) be considered when structuring the plan for transferring ownership. And there are personal needs to be considered as well. You may want the business to continue long after your death, you may have a concern for your employees and may also wish to give employees an equity interest in the business, and you may have a concern for the community in which the business is located. A good succession plan and an expert team will carefully coordinate your requirements.


Transferring the Business

There are a number of ways to transfer a family business and, in every way, there are important and strategic tax ramifications.


1. Sell the business assets

2. Sell the business stock

3. Allow the business to be acquired

4. Divide the business

5. Sell the business interest to an Employee Stock Ownership Plan

6. Sell the business to key employees

7. Sell the business to family members

8. Transfer the interest by will to one or more family members

9. Liquidate and sell the assets. (This is the least ideal of all transfers because significant value will be wasted.)


Succession planning can take up to five years or more as there are many things to consider. Each consideration can be complicated and at times it can be emotionally difficult. And, there will always be tax scenarios from which to choose depending on want, need, or desire. Because of all of this, it is in your best interest to create your succession plan sooner, rather than later.


This article was written to increase awareness around business succession planning. Hopefully it has raised questions for you. If so, please call the succession planning the experts at OFWF, (402) 592-3800.

At OFWF, we’re more than just accountants. We are seasoned succession and exit plan experts with your best interests in mind.

At OFWF, we’re more than just accountants. We are seasoned succession and exit plan experts with your best interests in mind. Secure your family business value and trust its eventual transfer with us.

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© 2018 by O'Donnell, Ficenec, Wills & Ferdig, LLP