A Successful Succession Plan Carried Out

Sibling owners of a successful local business decided to engage in succession planning. A goal of the planning was to transfer valuable interests in the company out of their respective estates, without giving up any control within the business.

The Business Advisory Group, with the help of other advisors, determined that the business projected to grow significantly in the coming years and decades. By transferring stock out of their estates now, at the present business value, the owners stood to position their estates to pay much less estate tax upon their deaths. A present transfer accomplishes a value freeze for purposes of estate taxes.

The Business Advisory Group restructured the business into two classes of stock – voting and non-voting shares. Gifts of non-voting shares transfer equitable value in the business without transferring control. The non-voting shares were valued with a formal appraisal, applying discounts for lack of control and marketability. The discount appraisal further enhanced the tax planning feature of the transactions.

The owners chose the amount of non-voting shares they were comfortable transferring. The Business Advisory Group created a Grantor Trust for each owner to receive the non-voting shares. The trusts included terms for succession after the owners’ deaths, stating who is Trustee, and who is entitled to distributions for what reasons and at what times. The transfers of stock for no consideration were gifts, valued per share based on the discount appraisal. The Business Advisory Group drafted all documents connected with the transactions, and prepared Gift Tax Returns to document the amount of the owners’ lifetime gifting exclusions used in the transactions.

The owners remain in complete control of their business, with substantial wealth removed from their estates. The result of the plan was clarity for the future, and a massive estate tax savings that will be enjoyed by the owners’ descendants in the future.