If you are a business owner and in a partnership with partners, we can help you focus on important issues like business continuity and buy/sell issues.

     • What would happen to your business if your partner retires?
     • What would happen if your partner decides to sell out, becomes disabled, divorces, gets sued or is forced to sell?
     • Will the business survive and who will control it?
     • What are the guidelines of the sale?
           Price, liability, payment schedule, etc.

We analyze and recommend change to help maintain business continuity and ensure an orderly transition before these events occur.
 

Transferring a business to a family member.
Many businesses across America were unable to transfer their successful business to the next generation due to poor or no planning. With proper planning, the families dream of transferring the business to a family member can be a dream come true.
 

INSTALLMENT SALE: The Most Common Strategy of Business Transfer

Goal: transition out of family business and keep current standard of living
Installment sale will not work in this scenario because it would trigger two income taxes and may also generate additional estate taxes.

Example: Parents sell business to children for $3M
                   Children receive money from business

Business generates income to child Children pay state, federal income tax Net to parents Parents sell business to children Cost basis Taxable gain to parents Parents pay state and federal tax Capital gains tax due Net Basis Net to parents Started w/gross income Income tax children paid Paid to parents Less capital gains tax Net amount to parents

$5,000,000  $2,000,000  $3,000,000  $3,000,000 (market value)  $ - 100,000  $2,900,000              at 22% (approximate)  $   638,000  $2,262,000  $ +100,000  $2,362,000  $5,000,000 -$2,000,000  $3,000,000  $   638,000  $2,362,000

*If this was an installment sale, children would have to pay interest to parents and it may not be tax deductible. Check with CPA on current income tax statutes.

Solution:
If business transition advisory had five (5) years before transitioning parents out of their business, there are several strategies available that can be used that perhaps are not being used.

Example:
Install a specially designed Qualified Pension Plan for parents. Depending on the amount and age of employees, we could contribute a large amount of pre-tax dollars for parents to relieve the income tax on the business and children in the future. After five (5) years, they could receive up to 50% of their current salary and retire. The balance of the compensation can come to them using an Intentionally Defective Trust tied to an Installment Sale. The children could take over the business without any out of pocket cost to them. After seven (7) – nine (9) years, the business would be the children’s to manage and the parents would not pay any capital gains taxes on the sale to the trust.