By Cynthia L. Umphrey
Introducing Dave,
the business owner and family man
Dave Beneficent, 52 years old, is the husband of Lisa, 46. They have two sons, Tristan and Pete, and one daughter, Anna. Dave has spent 25 years building up Beneficent, Inc., a company his accountant values at $5 million. Dave and Lisa individually own the business’ real estate estimated at $2 million. They have $1 million of other assets.
Dave, who is in good health, is the sole stockholder of the company. His sons work with him. His daughter, Anna, is still in college and not currently interested in joining the family business.
Setting Goals
Dave has begun grooming his sons so they will be able to take control when he is ready to step down. However, he wants the flexibility to bring his daughter into the business if she shows an interest without having to get the approval of his sons.
After he retires, Dave wants the business to provide financial security for himself and his wife until their deaths.
Both Dave and Lisa feel that the business and the business real estate should end up with the children that are active in the family business. At the same time, they want to make sure each child gets an equal share of the estate.
Interwoven in all these goals is the desire to minimize estate taxes and protect Beneficent Inc. from being destroyed or liquidated to pay estate taxes.
Exit Plan Elements
After carefully outlining these goals, Dave and his attorney got to work implementing an exit plan to meet his goals. They:
- Set up a Limited Liability Company (“LLC”) to own the business real estate;
- Established a self-renewing lease between the LLC and the company;
- Prepared revocable and irrevocable trusts;
- Recapitalized the company;
- Implemented a deferred compensation plan; and
- Set up a buy/sell agreement between Dave, Lisa and their sons.
Guided by his attorney, Dave also purchased life insurance policies to help the children buy the company after he and Lisa die.
Exit Plan Results
Dave and Lisa like the certainty that comes with exit planning. They will be well provided for during their lifetimes and they will leave a legacy for their children. They appreciate the flexibility that gives Anna time to decide what she wants to do after college.
They are taking advantage of the discounts available for gifting non-voting, minority interests in the company and/or the LLC to transfer part of the business interests to Tristan and Pete outside of the estate and gift tax system.
Should Dave die first, his wife has an income stream from the LLC on the property and the security of Dave’s stock. After Lisa’s death, assuming Anna does not join the company, Tristan and Pete will end up with all of the stock and the business real estate, and there will be enough cash from the insurance proceeds so that Anna gets one-third of the value of the estate.
For further information regarding these matters, please contact Ms. Umphrey at 248.619.2591 or click here to send an email.
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