Professional Documents
Culture Documents
Presented by
David Levi, CPA, PFS Senior Managing Director, CBIZ MHM, LLC.
Agenda
Why do We Care?
What is the Process? Income and Estate Tax Issues Stay in the Family or Transfer out of The Family? Summary / Key Takeaways Questions
Why do we care?
The Process
Start at the Finish Line Issues for the Business
Long before you think about transition, you should be thinking what it would look like for the business How does the sale of the business coincide with your continued involvement with it? What is the appropriate time frame? Is the talent in the business today? What is the business worth now/what can it be worth later? What could transition bring to/benefit the business? How reliant is the business on you today? Do you want the business to stay in the family? How would continued family ownership affect other management/stakeholders?
The Process
Start at the Finish Line Issues for the Owner
Things for you to think about personallybefore the Transaction Why am I doing /considering this? Gather Transaction Team CPA, Attorney, Banker, other Financial and Insurance Advisors What is my financial need? Does transition solve problems or create them? What will I do once the business is transferred? What are some of my other personal and financial goals?
The Process
Start at the Finish Line Issues for the Owner--More
How does the conversion of this asset coordinate with the rest of my planning? What Type of Structure do I consider? How do I keep my eye on operations once I start the process? Once I start, how do I get to closing? What happens to the proceeds at Closing?
The Process
Who Could / Should Acquire my Business?
Many different choices-each has pros and cons Take it Public Strategic Buyer-Competitor Current Business Partners Financial Buyer-Private Equity Fund, etc. EmployeesESOP Family
Going Public
Market
High
The Process
Considerations for the choice of Acquirer-if Not Family
Ability to payPublic Markets have certain advantages and limitations Will you have to self finance?Perhaps in non public transactions Guaranteed Price vs. Achievable Price Tax Consequencesentity deal or asset deal? Reputation and standing of the potential acquirer Will you be asked to participate in new ownership? If you are still involved after the liquidity event, what is the control you retain?
Having business appraisers and/or M and A advisers can help Who is it worth the most to? What steps should be taken to enhance the value? Operating the business on a normalized basis Working through a possible transaction
Market Analysis
Identify Potential Buyers Materials to be provided
Marketing Strategies/Follow Up
Contact and Qualify Potential Buyers
Selection/Evaluations Closing
Strategies to consider
Recapitalize the business to 10% voting and 90% non voting Gift to 6 year GRAT (non voting ownership of business) or Sell to Intentionally Defective Grantor Trust (non voting business ownership) Transfer Real Estate to LLC (management and Financial Interests)
GRAT (Trust)
Financial Results-GRAT
35% Discount for Non Voting Ownership ($9 million * 65%)=$5,850,000 value of Transfer Annuity Payment from Trust to Grantor is $1,051,540 1st Generation pays tax on Corporate income (with the distribution from GRAT) No Gift At end of 6th year, non voting ownership in the 2nd generation (in hands of business operator perhaps)
Financial Results--IDGT
Same $5,850,000 value as the GRAT Requires 10% seed gift/90% note Uses up $585,000 of Lifetime Transfer Amount $5,265,000 note for 9 years, interest only at 1.63% with no prepayment penalty Minimum Annual Payment $85,820 1st Generation owner pays tax on operations No Tax Consequence on Note Payment Beneficiaries of Trust 2nd Generation
If transfer is at death, significant liquidity crunch for estate taxes. Could be covered with insurance/other assets
Summary/Key Takeaways
What happens with your business has huge emotional and economic ramifications for you, your employees and customers as well as your family.
Understand what you are really trying to accomplish
Summary/Key Takeaways
Certain estate and gift rules currently in place may make transfers or transactions more attractive before the end of 2012
Consider the difference between appreciation and control Current low interest rates on intra family transfers Ability to use discounts for family transfers Adjusting ownership, even years before the transaction can enhance the family. Strategies such as GRATs and IDGTs can result in significant additional wealth transferred down the generation.
Summary/Key Takeaways
Difference between entity deals and asset deals
Capital gain to sellercan come from both Tax advantages to buyerusually from asset deal Beware asset transactions coming from C corporation transactions.
Summary/Key Takeaways
For all transactions, the correct process is important For non family transfers, after tax, net guaranteed proceeds should be your guide.
Anything in excess of that is at risk. Different types of potential buyers will produce different results
For intra-family transfers, ability to coordinate transaction with other estate planning is key.
How to affect those inside and outside of the business Coordinating business and non business wealth transfer is critical The impact be on family relationships should be considered
QUESTIONS?
Thank You