Business Succession Planning - Amazon S3taxes+in... · 2019. 6. 18. · CFP®, Certified Financial...

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Jason Baum offers securities through Rehmann Financial Network, LLC, member FINRA/SIPC. Investment advisory services offered through Rehmann Financial, a Registered Investment Advisor. Insurance services offered through Rehmann Insurance Group. Certified Financial Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Business Succession

Planning: Saving taxes in

ownership transfers and investing

proceeds wisely

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Presenters

Mary L. VanSkiver CPA, MBA, PHR, CEPA

Senior Manager

AREAS OF SERVICE

Transition Planning

Leadership Development

Organizational Development

Executive Coaching and Recruiting

Strategic and Succession Planning

Human Resources Outsourcing

AREAS OF SERVICEIndividuals

Trusts, estates and gifts

Not-for-profits

Income tax planning and compliance for trusts and individuals

Consulting

AREAS OF SERVICE

Comprehensive financial planning

Retirement income and cash flow planning

Investment portfolio design and analysis

Insurance planning and analysis

Corporate retirement and compensation plans

Jason Baum CFP®, ChFC®, MBA

Manager

Cathy Shoemaker CPA, MBA, MST

Principal

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Transition Options

ESOPsManagement Buyouts/Ins

Phantom StockStock

Appreciation Rights

Transfer Motives

Employees Charitable Trusts Family Co-Owners Outside

(retire)Outside

(continue) Public

Initial Public Offerings

Direct Public Offerings Reverse

Mergers Going Private

Consolidate Roll-ups

Buy and Build Recapitalizations

Negotiated One-Step Private

Auctions Two-Step Private

Auctions

Buy/SellRussian Roulette

Dutch AuctionRight of First

Refusal

OutrightGifts

SCINsAnnuitiesGRATsFLPsIDGTs

Charitable Remainder

TrustsCharitable Lead

Trusts

Transfer Channels

Internal External

Transfer Methods

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What are my choices?

Personal Planning #3

Ownership Planning #1

Business Planning #2

Basics:• Will

• Shareholder agreement• Life insurance

• Tax plan• Retirement plan• Investment plan

Alternatives:• Employee ESPO/buyout

• Family• Financial buyer or recap

• Industry buyers• Initial public offering

• Close down• Bankruptcy

Basics:• Sense of current value

• Sense of potential value• Value creation plan

• Business plan/presentation

• Owner/manager succession

Transition Planning/Strategy Process

How much is it worth?

How much do I need?

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DISABILITY DIVORCE DISAGREEMENT DISTRESSDEATH

The Five D’s

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Agenda

Where will my money go?

Getting the most to my family

Planning after the sale

Expectations in retirement

Variables to consider & their impact on you

Charitable trusts

Obstacles & opportunities

Rehmann advisors & Wealth Path

Business wisdom delivered

Questions & discussion

Why Have an Estate Plan

Income tax considerations

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Where will my money go?

1 FAMILY

2 CHARITY

3 GOVERNMENT (TAXES)

If the sale of your business is successful enough to leave you with more money than you expect to need, there are three places it can go:

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• If there is no estate plan in place prior to sale; 40% federal estate tax will likely apply to proceeds transferred to the next generation that exceed the exclusion amount (currently $11.4 million per person).

• Depending on what state you live in there may also be a state estate/inheritance tax due.

Why have an estate plan?

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A B

Yes No

Polling question #1

Do you currently have estate planning documents in place?

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Planning opportunities prior to the salethat can help maximize wealth transfer to the next generation is key.

• Gift business interests to next generation

• Income tax considerations

• Estate/gift tax considerations

• Sale of business interest to Intentionally Defective Grantor Trust (IDGT)

• Grantor Retained Annuity Trust (GRAT)

Getting the Most to My Family

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Income Tax Considerations

What is the tax picture if you are selling your business?• Top capital gains tax rate – 20%• Top ordinary income tax rates – 37%

Don’t forget about…• Net investment income tax rate – 3.8%• State income tax rates

Depending on where you live you could pay over 50% in income taxes when you sell your business.

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2 31 4 5

Section 1202: Small business stock capital gains

exclusion

Installment Sale

Treatment

Stock vs. AssetSale

Allocation in the Purchase Price

ESOP: Employee Stock Ownership

Plan

Income Tax Considerations, cont.

What should you be discussing with your tax advisor prior to the sale to helpdefer or mitigate the income taxes to be paid?

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Planning After The Sale

What are the opportunities and obstacles that someone may face during this transition?

Is the financial impact of selling your business in-line with your expectations for life during retirement?

What might someone be unaware of when planning for their future after the sale?

What to do when sales proceeds must be converted to cash flow?

How to address the risks associated with converting to cash flow?


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• Finding ways to spend time now that significant effort may not be required to run the business.

• Having a pre-constructed plan in place that incorporates the variables associated with “post-sale” life.

• Incorporating your most significant asset value into the context of retirement.

• The period of time leading up to this event opens up the possibility for significant planning opportunities related to investing, charitable endeavors and retirement planning.

• The opportunity to pursue other interests and activities can be an exciting time.

Obstacles & Opportunities

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B CA D

At least $500,000

Between $250,000

and $499,000

Less than $250,000

I have no idea

Polling question #2

The amount of money I think I need in retirement to live comfortably but not run out of money is:

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When making the transition from business owner to retirement, financial decision-making can be overwhelming, especially when juggling a number of competing priorities. The development of a financial plan is the best step in understanding the impact that spending, taxes, inflation and financial markets can have on your retirement goals.

Did you know?

• 1 in 4 Americans have a written financial plan. Those that do exhibit positive investing and saving behavior and feel financially stable relative to those without a plan.

• 48% of workers report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably in retirement.

• 46% percent of workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. 19% say they need between $250,000 and $499,999, while 25% think they need to save less than $250,000 for a comfortable retirement.

• 19% of pre-retirees thought they could withdraw 7-9% per year from their savings. An additional 19% thought they could withdraw 10-15% per year.

Expectations in Retirement

Source: 2015 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates

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Variables to Consider

Should you rollover your company retirement plan to an IRA? What are the advantages/disadvantages in doing so?

Is a Roth conversion appropriate for you?

How should proceeds from a business sale be invested and how is investment risk accounted for?

How do I go about producing an income stream from my assets? What are the implications in doing so?

Do I need life insurance during retirement? What are my options for any existing policies?

What is the appropriate amount of investment risk in my portfolio so that I don’t run out of money in retirement?


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• It could make sense to rollover your retirement plan to an IRA.

• Be aware that rules regarding distributions from a qualified retirement plan account and an IRA do differ.

• Example: Discrepancy between age 55 vs. 59 ½

• Depending upon your income tax situation, a Roth conversion of retirement plan assets may be suitable for you.

• Amounts converted to a Roth IRA are generally subject to ordinary income tax; however, future earnings are distributed tax-free when made as a qualified distribution.

• Developing a diversified investment portfolio and investing strategy is of paramount importance. Recent studies have confirmed that mistakes in this area can cost investors nearly 4% per year.

• Investment avenues exist that offer the potential for guaranteed retirement income, tax-deferral and principle protection while incorporating estate planning and wealth transfer goals. How and when withdrawals are taken from various accounts can have a significant impact on the sustainability of your financial resources.

• If life insurance was put in place as a business continuation approach - review the available options before canceling any policies outright after sale of the business.

In Summary

• The risk of outliving financial resources is greater than many people realize. Developing a plan that accounts for your personal risk tolerance and capacity while accomplishing your income and wealth transfer objectives is vital to achieving the life in retirement that you desire.

The Impact on You

Source: Society of Actuaries, “Reaching Guaranteed Lifetime Income”. https://www.soa.org/Search.aspx?q=guaranteed+lifetime+income

https://www.soa.org/Search.aspx?q=guaranteed+lifetime+income

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Competitors Comparison

VS

Charitable Lead Trusts

Balance to family

Charitable Remainder Trusts

Balance to charity

Charitable trusts can be established in the year of sale to help mitigate the current income tax, future estate tax, and provide a current income stream for you or your family.

Income stream to you or your family during

life

Income stream to charity for a certain numbers of years

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Wealth Path

Real-time Modeling Net Worth Statement Secure Vault

We have the capability of modeling real-time

changes of variables to illustrate the impact on

your financial and estate plan.

Informative Reports

Add financial assets including investments,

property & business values, liabilities and more to produce an

accurate picture of your net worth.

You will have access to your complete financial

picture along with an online “Vault” for

important financial documents and

information.

Generate comprehensive reports illustrating cash

flow, investment analysis, net worth and insurance

coverage… just to name a few.

Rehmann Advisors & Wealth Path

With the assistance of a Rehmann Financial Advisor and our comprehensive financial planning tool, Wealth Path, all of these questions and more can be answered.

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Rehmann

CPAs Assist you with

forecasting and planning to reduce the

income tax impact.

Estate PlanningAssist you with

reducing transfer tax consequences.

Financial AdvisorsAssist you with retirement and

investment management needs.

Business Wisdom Delivered

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Questions?

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Please send any questions to [email protected] view more of Rehmann’s resources at:

rehmann.com/succession-planning

Thank you for joining!

mailto:[email protected]

http://www.rehmann.com/succession-planning

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Thank you!

Business Succession Planning - Amazon S3taxes+in... · 2019. 6. 18. · CFP®, Certified Financial...

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Transcript of Business Succession Planning - Amazon S3taxes+in... · 2019. 6. 18. · CFP®, Certified Financial...