business succession planning for uncertain times: … resources/bus...communication and trust within...
TRANSCRIPT
![Page 1: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/1.jpg)
Business Succession Planning forUncertain Times: What is Your Planfor ‘The Worst’?
Goals for Business Succession Planning
presented byThomas C. Hoffman, II, Esq.Knox McLaughlin Gornall & Sennett, P.C.Copyright © 2020 Knox McLaughlin Gornall & Sennett, P.C.
![Page 2: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/2.jpg)
2
Business Succession Planning Goals
Protect the BUSINESS and your FAMILY
Protect your FAMILY and the BUSINESS
![Page 3: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/3.jpg)
3
Business Succession Planning Goals
Are you and your family ready for businesssuccession?
– Immediate business succession
– Long-term business succession plan
Is your business ready for business succession?
– Immediate business succession
– Long-term business succession plan
![Page 4: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/4.jpg)
4
Family
Is your business the primary asset available tosustain your family upon your deathimmediately, and/or in the future?
Is your business in a position to be able tosustain your family without you?
– Management
– Market
– Strategic plan
![Page 5: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/5.jpg)
5
More Business Succession PlanningGoals
Flexibility
Estate tax and income tax efficiency
![Page 6: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/6.jpg)
6
Estate Plan
Will / revocable trust
Power of attorney
Healthcare power of attorney
Multi-generational trust planning
Immediate succession planning: who votes thestock in the company
Special business trustee / special businesstrustee committee
![Page 7: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/7.jpg)
7
What Happens to the Business?
Market and sell the business?
Maintain the business to preserve for the family?(see Family Private Equity Model, later in thispresentation)
Do you have such a person or committee ofpersons?
Have you provided guidance to your special businesstrustee or your special business trustee committeeregarding your intentions?
![Page 8: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/8.jpg)
8
Potential Members of Committee
Spouse?
CPA?
Key employee?
Other family member?
Friendly competitor?
Consultant?
Attorney?
![Page 9: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/9.jpg)
9
Advisory Committee / Board of Directors
Develop now!
How do you find independent members?
Develop chemistry between independent members and list ofpotential committee members listed on last slide (advisors).
Rules and governance for committee and board of governors.
Who appoints new members?
– Self perpetuating?
– By majority vote with concurrence of key person?
– Spouse?
– Other key family member?
– Any other person?
![Page 10: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/10.jpg)
10
Ad Hoc Family Business Succession
Unscientific observations from 60 years ofKnox Law business succession planning:
1/3 of family business successions to the nextgeneration are successful
1/3 … are mediocre to below average
1/3 … are family and business disasters
![Page 11: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/11.jpg)
11
Why Family Businesses Fail –“What Bit Me?”
60% of failure is due to a lack ofcommunication and trust within the familyaround group decision making, education andgovernance. Family culture?
25% of failure is due to unprepared heirs.
Only 3% of failure is due to failures in financialplanning, taxes and investments!
SOURCE: Williams and Pressier; Tom Rogerson
![Page 12: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/12.jpg)
12
The Journey
![Page 13: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/13.jpg)
13
What Business Owners Want: TIME!
![Page 14: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/14.jpg)
14
Business Succession Planning:What Are Your Options?
Transition to Your Family (Descendants)
Sale to Third Parties
Sale to Key Employees (including ESOP)
Gift to Your Favorite Charity (Penn State?)
From April 2017
![Page 15: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/15.jpg)
15
Five Ways to Transition A Business
1. Sell/Gift To Family
2. Sell To Employee(s)
3. Sell To External Buyer (Strategic Buyer orPrivate Equity)
4. Sell To Existing Partner(s)
5. Family Private Equity Model: Hold the BusinessAs Investment
In all cases, use the MaxProtect Plan®
![Page 16: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/16.jpg)
16
We Are All Bakers
![Page 17: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/17.jpg)
17
What A Great Idea!
![Page 18: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/18.jpg)
18
The Family Private Equity Model Epiphany
The light bulb goes on!
Owner treats his/her company as an operatingcompany; something that spins off cash.
The epiphany is when the owner treats thecompany as a financial vehicle, which has manyalternatives.
![Page 19: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/19.jpg)
19
Family Private Equity Model Platform
Child A2018 Irrevocable Trust
Voting Stock: 33%Non Voting Stock: 33%
Child B2018 Irrevocable Trust
Voting Stock: 33%Non Voting Stock: 33%
Child C2018 Irrevocable Trust
Voting Stock: 33%Non Voting Stock: 33%
Independent Board of Directors
Professional OfficersPresident, VP, Secretary, Treasurer, etc.
Best Family Investment, Inc.
![Page 20: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/20.jpg)
20
Profile the President
Attributes
Skills
Experience
Behavioral Profile
Define the Potential OutcomesAt the Entity Level (as a financial vehicle)
Build &Sell
President /ManagementBuyout
Merger ofUnequal
FamilySuccession
Private EquityPlatform
Family Private Equity Model Options
![Page 21: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/21.jpg)
21SOURCE: Tom Rogerson
![Page 22: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/22.jpg)
22 SOURCE: Tom Rogerson
![Page 23: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/23.jpg)
23
Dealing with Taxes
Federal estate tax
Pennsylvaniainheritance tax
Income taxes
![Page 24: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/24.jpg)
24
Federal Estate Tax
YearExclusionAmount
YearExclusionAmount
2007 $2,000,000 2014 $5,340,000
2008 $2,000,000 2015 $5,430,000
2009 $3,500,000 2016 $5,450,000
2010 N/A 2017 $5,490,000
2011 $5,000,000 2018 $11,180,000
2012 $5,120,000 2019 $11,400,000
2013 $5,250,000 2020 $11,580,000
![Page 25: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/25.jpg)
25
Portability
The $11,580,000 credit is now portable
Any unused portion can be transferred tosurviving spouse
Surviving spouse could potentially have$23,160,000 of exemption for lifetime gifts andtransfers at death
![Page 26: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/26.jpg)
26
Example
Spouse 1$11.58million
exemption
Spouse 2$11.58million
exemption
$23.160 million passesfree of federal estate
and gift tax
![Page 27: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/27.jpg)
27
Pennsylvania Inheritance Tax
Assets Passing to Spouse or Charity 0%
Assets Passing to Descendants 4.5%
Assets Passing to Siblings 12%
Assets Passing to All Others(including Nieces and Nephews)
15%
![Page 28: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/28.jpg)
28
Outright Gift or Sale to Descendants
Keep it Simple Stupid!
Or, Is “Keeping it Simple” Stupid?
Selling the business to descendants
Part sale / part gift of business todescendants
Gift of business to descendants
![Page 29: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/29.jpg)
29
Why Use Generational Trust Planning for the Sale ofBusiness to Your Descendants
Ownership in Trust helps deal with:
1. Divorce
2. “Other” creditors
3. Substance abuse
4. Privacy
5. Disability
6. Bankruptcy
7. Uncertain business management
8. Flexibility
9. Income tax
10.Federal estate tax (and PA inheritance tax, if any)
![Page 30: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/30.jpg)
30
Common Misconceptions about Trusts
Inflexible
No access
Create “trust fund babies”
More harmful than helpful
Unnecessary if no taxable estate
Etc.
![Page 31: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/31.jpg)
31
Techniques for Selling or Gifting Business toMulti-Generational Trust
Sale to trust
Part sale / part gift to trust
All gift to trust
![Page 32: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/32.jpg)
32
Thank You!
Thomas C. Hoffman, II, Esq.Knox McLaughlin Gornall & Sennett, P.C.
[email protected] Linda: [email protected]
Office (814) 459-2800Cell (814) 572-5194
Please know there is no charge for our initial meeting (whetherin person, on the phone, or via webcam).
After developing the client’s intentions more thoroughly, weprepare a written engagement letter with a firm estimate ofthe cost prior to the client being obligated to pay any fees.
![Page 33: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/33.jpg)
33
Disclaimer
These materials should not be considered as, or as asubstitute for, legal advice and they are not intended nordo they create an attorney-client relationship. Becausethe materials included here are general, they may notapply to your individual legal or factual circumstances.You should not take (or refrain from taking) any actionbased on the information you obtain from these materialswithout first obtaining professional counsel. The viewsexpressed do not necessarily reflect those of the firm, itslawyers, or clients.
![Page 34: Business Succession Planning for Uncertain Times: … Resources/Bus...communication and trust within the family around group decision making, education and governance. Family culture?](https://reader034.vdocuments.mx/reader034/viewer/2022042205/5ea71698763a4653fa3ac513/html5/thumbnails/34.jpg)
34
Copyright Notice
Copyright © 2020Knox McLaughlin Gornall & Sennett, P.C.
All materials contained here are protected by UnitedStates copyright law and may not be reproduced,distributed, transmitted, displayed, published orbroadcast without the prior written permission ofKnox McLaughlin Gornall & Sennett, P.C.