BUSINESS SUCCESSION PLANNING FOR ESTATE PLANNERS (60 … · Anticipating and mitigating family...

BUSINESS SUCCESSION PLANNING FOR ESTATE PLANNERS

First Run Broadcast: October 26, 2016

1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)

One of the biggest challenges common to most family businesses is succession. Who’s next?

After a founder chooses to retire, or forced into it by disability or incapacity, or dies, who among

the next generation can step competently into senior leadership, preserve the economic value of

the company, and do so without creating a rupture in the family? Many successful family

businesses founder because this process is not carefully planned and executed. And succession

planning is an inseparable part of trust and estate planning. Without succession planning, all the

elaborate transfer and tax plans are without a goal. This program will provide you with a process

for anticipating and techniques for mitigating family drama in succession planning, and discuss

several practical alternatives for transferring control and ownership.

Anticipating and mitigating family drama in succession planning

Common drama triggers – lack of communication, income expectations of family

members, intra-family strife

Planning for phased withdrawal of a senior generation using lifetime gifting

Use of buy-sell agreements with key family and non-family members

Sales to third-parties where an equitable or peaceable within the family is not possible

Planning for the disability or incapacity of key members of the senior generation

Issues involving key non-family member employees and their retention in the succession

Speakers:

David T. Leibell is Senior Wealth Strategist at UBS Private Wealth Management in New York

City, where he provides clients comprehensive strategies to assist in the preservation, transfer

and management of wealth. He also serves as an internal resource for UBS clients on all issues

related to tax, estate planning, philanthropy and wealth planning. He is chairman of the Family

Business Committee for Trusts and Estates Magazine and is listed in “The Best Lawyers in

America” for two practice areas— Trusts and Estates and Charities/Non Profits. Before joining

UBS, he was a partner in the Private Client Services Department of Wiggin and Dana, LLP in

Greenwich, Connecticut. Mr. Leibell received his B.A. from Trinity College and his J.D. from

Fordham Law School.

Daniel L. Daniels is a partner in the Greenwich, Connecticut office of Wiggin and Dana, LLP,

where his practice focuses on representing business owners, corporate executives and other

wealthy individuals and their families. A Fellow of the American College of Trust and Estate

Counsel, he is listed in “The Best Lawyers in America,” and has been named by “Worth”

magazine as one of the Top 100 Lawyers in the United States representing affluent individuals.

Mr. Daniels is co-author of a monthly column in “Trusts and Estates” magazine. Mr. Daniels

received his A.B., summa cum laude, from Dartmouth College and received his J.D., with

honors, from Harvard Law School.

VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________

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Business Succession Planning for Estate Planners Teleseminar

October 26, 2016 1:00PM – 2:00PM

1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER October 19, 2016

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: October 26, 2016 Seminar Title: Business Succession Planning for Estate Planners Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Estate Planning for

the Closely Held

Business Owner

Daniel L. Daniels and

Michael T. Clear

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• Special Challenges for Succession Planning for Closely Held Businesses

• Analysis / Paralysis

• Phased Based Planning

Introduction

Estate Planning for the Closely Held Business Owner

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• Tax efficient wills and revocable trust agreements

• Fiduciary role education and selection

• Probate avoidance

• Anti-divorce planning

• Incapacity planning

• Asset protection / entity choice

• Shareholder agreement

Phase One Planning: Key Elements


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• Airtight Transfer Tax System

• Leaks in the System – Freezing Value

– Discounting Value

– Removing Value

Phase Two Planning: Lifetime Gifting


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• Spousal Lifetime Access Trusts (SLAT)

• Sale to Intentionally Defective Irrevocable Trust (IDIT)

• Grantor Retained Annuity Trusts (GRAT)

Phase Two Planning: Typical Strategies for

Business Owners


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• Trust with spouse and descendants as beneficiaries

• Used for freezing, discounting and removing values

• Benefits – Estate reduction

– Simple to create and administer

– Continuing access and control for grantor’s spouse

– Grantor Trust

– Generation skipping

Phase Two Planning: SLAT


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• Business owner establishes SLAT (or other irrevocable trust)

• Business owner makes a gift to the SLAT (e.g. $2 million)

• Sometime later, business owner sells an interest in business to the SLAT in return for the SLAT’s promissory note

– Note provides for payment of interest-only for 9 years with a balloon payment of principal due at the end of the 9 year term

– Interest rate is set at the lowest rate permitted under the tax code (June rate is 1.41%, example uses April rate of 1.45%)

– For this example, assume enterprise value of LP interest is $15 million but 33% valuation discount is applied so that the value for purposes of the sale transaction is $10 million

Phase Two Planning: IDIT Sale


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Step 1: Seed Capital Gift of $2 million to SLAT

Business Owner SLAT

$2 million gift

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Step 2: Business owner sells limited partnership interest

appraised at $10 million to SLAT for SLAT’s $10 million

promissory note

Business Owner

LP Interest

SLAT

$2 million

Note

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Step 3: SLAT Uses Partnership Distributions to Service Note

Business Owner

($10 mm

Promissory

Note)

SLAT

(LP Interest

Subject to

$10 mm Note)

Interest and

principal

payments

Limited

Partnership

Partnership

Distributions $$

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Numerical Example: LP Interest Grows and/or Produces

Income Greater Than Debt Service


Initial value of property $15,000,000

Valuation discount 33%

Discounted value of property $10,000,000

Interest rate on promissory note 1.45%

Assumed rate of return 5.00%

Year Beginning Value Return Note payment End Value

1 $15,000,000 $750,000 ($145,000) $15,605,000

2 $15,605,000 $780,250 ($145,000) $16,240,250

3 $16,240,250 $812,013 ($145,000) $16,907,263

4 $16,907,263 $845,363 ($145,000) $17,607,626

5 $17,607,626 $880,381 ($145,000) $18,343,007

6 $18,343,007 $917,150 ($145,000) $19,115,157

7 $19,115,157 $955,758 ($145,000) $19,925,915

8 $19,925,915 $996,296 ($145,000) $20,777,211

9 $20,777,211 $1,038,861 ($10,145,000) $11,671,071

Value Removed From Taxable Estate (in SLAT): $11,671,071

Approximate Estate Tax Savings: $5,835,536

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• IRS may treat a portion of the sale as a gift

• Remote risk that IRS would treat entire transfer as a gift

• If transaction not administered carefully, risk that IRS will bring the entire trust back into the business owner’s estate at death

• If grantor trust status turned off while the note is outstanding or during any period in which the trust has “negative basis” assets, taxable income will be recognized

• If note remains unpaid at business owner’s death, there may be capital gains tax on the unpaid balance at that time

• A gift tax return should be filed reporting both the seed capital gift and the sale transaction

Phase Two Planning: IDIT Sale: Tax

Considerations


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• Trust with spouse and descendants as beneficiaries

• Used for freezing, discounting and removing values

• Benefits – Estate reduction

– Simple to create and administer

– Continuing access and control for grantor’s spouse

– Grantor Trust

– Generation skipping?

Phase Two Planning: GRAT


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Zeroed-Out GRAT

• Grantor transfers $1 million to a GRAT when IRS assumed interest rate = 1.4%

• Grantor receives $119,000 annually for 9 years

• After 9 years, remaining GRAT funds pass to children

• Value of taxable gift is near $0



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Savings Dependent on Investment Performance

Average Return Amount Passing Tax Free

1.4% $0

4.0% $164,000

6.0% $322,000

8.0% $513,000



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Property suitable for a GRAT

• Growth stocks

• Commercial real estate

• Closely held business

• LLCs and LLP



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• Grantor dies before termination of GRAT – At worst, property taxable in grantor’s estate

– Nothing gained, but nothing lost

• Investment underperforms IRS assumed rate – Nothing gained, but nothing lost

– Grantor receives $119,000 annually for 9 years

Phase Two Planning: GRAT Risks


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Daniel L. Daniels is a partner in Wiggin and Dana's Private Client Services Department and a member of the firm's Executive Committee. He divides his time between the firm's Greenwich and New York offices. Dan focuses his practice representing business owners, private equity and hedge fund founders, family offices and other wealthy individuals and their families. He received his A.B., summa cum laude, from Dartmouth and his J.D., cum laude from Harvard Law School. [email protected] 203-363-7665

Daniel L. Daniels


mailto:[email protected]

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Michael T. Clear is a partner in Wiggin and Dana's Private Client Services Department. Michael focuses his practice on estate planning, estate and trust administration, probate litigation and business succession planning. He guides fiduciaries and beneficiaries through estate settlement and trust administration matters. His estate and trust administration practice often intertwines with his probate litigation practice where he advises clients in will and trust construction cases, contested accounting proceedings, fiduciary removal proceedings, payment of unpaid claims and conservatorship and guardianship matters. Michael received his J.D. magna cum laude from the Quinnipiac University School of Law. [email protected] 203-363-7675

Michael T. Clear



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Wiggin and Dana LLP is a full-service law firm of approximately 150 lawyers with offices in the Northeast, including Connecticut, New York, Philadelphia and Washington, DC. Since its founding in 1934, the Firm has served the legal needs of entrepreneurs, corporate executives and other wealthy individuals and their families, as well as charitable and educational institutions, emerging companies, middle market business organizations and Fortune 500 corporations.

Wiggin and Dana


PROFESSIONAL EDUCATION BROADCAST NETWORK

Speaker Contact Information

BUSINESS SUCCESSION PLANNING FOR ESTATE PLANNERS

David T. Leibell

UBS Private Wealth Management – New York City

(o) (212) 821-7063 [email protected]

Daniel L. Daniels

Wiggin & Dana, LLP - Greenwich, Connecticut (o) 203-363-7665

[email protected]



BUSINESS SUCCESSION PLANNING FOR ESTATE PLANNERS (60 … · Anticipating and mitigating family...

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