There are lots of exit strategies: Wills, Power of Attorneys, Trusts, 1031 Exchange, Eldercare, Sheltering Assets, Leases, Tenancy at Will, Estate Taxes, Property Management and Business Succession Planning.
Everyone has heard of making a Will, for when you die. The one exit strategy that I hadn’t heard of or really thought about was Business Succession Planning. What is going to happen to your apartment business? Is your remaining family going to know how to keep your apartment business running? Would they even want to? This is where Business Succession Planning comes in. Business Succession Planning is a detailed plan designed to transfer ownership and control of your business and/or properties to the right people and in the right way for your goals. The most common tools used in Business Succession Planning are:
- Life Insurance – Pay in to a policy and on death it is paid out to the business or partner(s).
- Buy – Sell Agreements – Provides one party with the option/obligation to purchase another party’s business interest upon certain life events.
- Redemption Agreements - A Buy-Sell Agreement under which the corporation or partnership agrees to buy out the interest of a shareholder or partner.
- IDGT - Intentionally Defective Grantor Trust - is an irrevocable trust in which the grantor retains a controlling interest in trust-owned assets. For example, the asset in the trust may be a minority interest in the grantor's family business and he may own controlling interests in the business.
- GRAT - Grantor Retained Annuity Trust –Annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing.
Often more than one strategy will be used together to help protect the business asset, keep the business running or help the owner move into passive retirement.
Everyone's situation is unique and needs to have a strategy tailored to their needs. Each of these tools are very powerful to help you achieve your goals. Whenever using any of these tools seek professional advice. Business Succession Planning is a process, it is not a one time event. Include your professional advisers to help with the planning. Don’t wait start planning now. The more you plan now the better off you will be.
* notes from Nathaniel S Putnam, Esq power point and investopedia.com
If you would like a copy of my 10 pages of notes from the GBAOMA – Legal conference "Exit Strategies" send an e-mail to JamesErnst@kw.com
