I was recently honored to deliver the keynote address for a symposium sponsored by the Purposeful Planning Institute. The topic was the one I frequently describe as “the most neglected area of estate planning:” Business Succession Planning. Click here for a copy of my PowerPoint.
In the realm of “head and heart” estate planning, transitioning a family business draws heavily from both the head and the heart. All business transfers present challenges for a founder, whether the transfer is to family members, insiders/employees, or outside third parties, but the sale to third parties tends to be most challenging. Indeed, unless we pay sufficient attention to the owner’s personal transition, the transaction almost always fails. Here are three examples where The Blum Firm successfully shepherded the process of selling a business through to closing.
- Founder and his wife observed that they had done their job educating their children and setting them up in good careers. Ready to retire, charitably inclined, and seeking a steady lifetime stream of income, they transferred their business to a Charitable Remainder Trust (“CRT”). (Note that there are special income tax considerations that apply when transferring a business to a CRT.) The CRT sold the company, deferring income tax on the sale. The tax was paid gradually over the years as the CRT made annual payments to the couple (and later, after the husband died, to the surviving wife). In addition to financial peace of mind, the couple enjoyed knowing that their favorite causes would benefit when the remaining trust funds pass at the survivor’s death to a Donor Advised Fund.
- The owners of a legacy family business received an unsolicited offer for considerably more than they thought the company was worth. Resisting the temptation to give a quick “yes,” they hired a broker to take the business to market. Four more suitors surfaced and engaged in a bidding war. They ultimately sold to a strategic buyer who paid four times the original offer, in cash. Each child owned some shares and received a generous payout. The bulk of the proceeds went to the parents, who then created a Family Foundation which they enjoy operating. Since the children each have their own wealth, the parents are leaving their estate to the Family Foundation.
- The self-made creator of a major enterprise was eager to monetize the value of his business and lighten the burden of being the sole “captain of the ship.” He declined multiple offers from private equity firms for fear they might burden the business with debt and lay off employees (whom he considered like family). Instead, he sold the business to a major conglomerate, getting the value out of the company but under an arrangement where he could stay on and run it for as long as he wishes. Also charitably minded, the founder and his wife are donating a substantial portion of their wealth to a Family Foundation.
These three transactions addressed the founder’s head needs as well as heart needs, thereby making it to the finish line with a successful closing. Estate planning advisors are uniquely positioned to help business owners address both the quantitative (head) and qualitative (heart) aspects of business succession planning. I applaud the work of the Purposeful Planning Institute for training advisors to deal with both aspects—in their words, “to fuse the technical aspects of Estate Planning and Wealth Management with relational and legacy planning.” I was honored to be on the PPI Symposium faculty and serve as a champion for the cause.
Marvin E. Blum
Marvin Blum delivers keynote on “Business Succession Planning” for the Purposeful Planning Symposium.