Business Succession and Estate Planning
Since the beginning of his financial services career, Rocky Gandy, Managing Member, has focused our efforts to sourcing solutions for the complex challenges faced by the private and public company arena around the subject of business succession and estate planning for our clients most significant assets. Their Business Interests.
Public companies almost always have a documented plan of succession for key management positions (Chairman, CEO, COO, CFO, etc.). The shareholders expect a continuity plan to be in place in the event of the key employee’s death, disability, retirement, or unexpected termination for cause or otherwise.
We encourage our privately held business clients to develop Succession plans and coordinate with their estate planning for a smooth ownership transition when a shareholder of significance experiences a death, disability, retirement, or unexpected termination for cause or otherwise like the public company plan. The challenges an entrepreneur or family office may face in passing the business interest intact to the next generation of ownership and managers can be daunting and emotionally charged.
The path to the solution is lined with questions which when addressed, will determine the objective desired by our client. Areas of focus for our review and consult are as follows:
- Business agreements, including buy-sell, entity operating agreement, entity structure, current succession considerations and designated successors
- Estate documents, including wills, revocable and irrevocable trusts, estate strategies in place to minimize impact of taxes for gifting and interfamily transactions to date. The Estate Tax is a graduated tax and is 40% on taxable estates above $1,000,000. The 2022 exemptions offset the tax due when applicable. Estate taxes are due for individual taxable estates above approximately $12,060,000 (2022 individual federal estate tax exemption: $12,060,000; combined exemption per couple in 2022: $24,120,000). (for more information visit www.irs.gov)
- Are you aware of the possible impact of estate taxes in the transfer of the business interest to your heirs?
- Key personnel retention strategies necessary to ensure the Key personnel remains in their position before, during and after the succession plan to maximize the business value and ensure the success of the next generation of ownership. Executive benefits strategies may include restrictive agreements with financial retention incentives for the most key employee/management.
- Credit structure is often overlooked assuming the bank and lending structure can be addressed after the fact. This may prove to be lethal to the surviving business unless addressed in advance. What is collateral for the credit structure? Are their personal guarantees? What does the bank loan, credit agreement say in the event of a death, disability, retirement of a guarantor?
- Are there family heirs of the business interest? Are they active or are they inactive? How do you reward the active family members for their contribution? What is a fair value for an inactive family that does not contribute but should still benefit from the family enterprise? How do you avoid bad blood with a decision that is good for the business but bad for interfamily relationships?